In This Article

  • Supreme Court Ruling on Hidden Commissions in Car Finance
  • FCA Compensation Scheme Details and Eligibility
  • Payout Structure and Timeline for Affected Consumers
  • Industry Concerns Over Historical Data and Market Stability
  • Background on Discretionary Commission Arrangements (DCAs) and Legal Context

Key Takeaways

  • Car finance mis-selling victims in the UK are expected to receive compensation below £950 each under a new FCA scheme.
  • The Supreme Court ruled only exceptionally high hidden commissions (e.g., 55%) are unlawful, limiting eligibility for redress.
  • The FCA estimates total compensation costs between £9 billion and £18 billion, with payouts starting in 2026 after a 2024 consultation.
  • Affected customers will be contacted directly by lenders, with pre-2007 cases potentially eligible despite data feasibility concerns.
  • The FCA banned 'discretionary commission arrangements' in 2021, but unresolved complaints and limited recourse remain for 2007–2021 cases.

Millions of consumers affected by mis-sold car finance agreements are expected to receive payouts below £950 each under a compensation framework being developed by the UK’s financial watchdog. The Financial Conduct Authority (FCA) proposed the scheme following a landmark Supreme Court ruling on hidden commissions in auto loans, which reversed earlier judgments on the legality of such practices.

Key Details of the Compensation Scheme

The Supreme Court ruled on Friday that while most hidden commissions paid to car dealers by lenders are not unlawful, exceptionally high commissions—such as the 55% case involving Marcus Johnson—constitute unfair treatment. This narrow exception leaves the majority of mis-sold cases ineligible for redress. The FCA estimates the total cost of repayments could range between £9 billion and £18 billion, though exact figures remain uncertain.

Payouts are expected to commence in 2026, with the FCA set to launch a public consultation in October to finalize eligibility criteria and compensation amounts. The regulator emphasized that victims do not need to engage third-party claims firms, as lenders will directly notify affected customers. dealings pre-dating 2007 may also qualify for redress, though the Finance & Leasing Association raised concerns about the feasibility of obtaining historical data required for such cases.

FCA CEO Nikhil Rathi stated, "Consumers who suffered harm should receive fair compensation without unnecessary costs from claims management companies." The regulator reassured that the scheme would not destabilize the automotive finance market, despite industry worries about the retrospective application of rules back to 2007.

The controversy stems from "discretionary commission arrangements" (DCAs), banned by the FCA in 2021 for incentivizing dealers to push higher interest rates. Over 80,000 unresolved complaints related to DCAs had been on hold awaiting the Supreme Court’s verdict. While the ruling clarifies legal boundaries, it leaves millions of motorists—many of whom purchased vehicles between 2007 and 2021—with limited recourse.

Tags:

#car finance #compensation scheme #Supreme Court ruling #FCA #mis-selling