Peter Vosper: Uncertainty over mis-sold finance compensation

Having reviewed the detail of the Finance Conduct Authority (FCA) statement some lenders dispute the amount but have increased their amount set aside.

In 2021 the FCA banned deals in which the dealer received a commission from the lender, based on the interest charged to the customer. These were known as discretionary commission arrangements (DCAs) and were undisclosed, meaning drivers were at risk of overpaying for the loan. Reputable dealers who followed the FCA ruling will presumably be protected, and their customers were deemed to be fairly treated.

However, other car buyers had an unfair contract because the commission paid to dealers was so high, accounting for at least 35% of the total cost of credit and 10% of the loan, and some were not given accurate information about getting the best finance deal because of an exclusive right given to lenders.

The regulator has now proposed a scheme to compensate drivers who were subject to these arrangements. If it gets the go-ahead once the scheme starts:

lenders will contact those who have already complained. If they don’t hear back after one month, lenders will assume they should look at the case and pay compensation if appropriate.

those who have already complained before the scheme gets up and running are likely to receive compensation faster.

those who have not complained will be contacted by their lender within six months of the scheme starting. People will be asked whether they want to opt into the scheme, to have their case reviewed. They will have six months to decide. 

those motor finance borrowers who do not receive a letter, for example if lenders no longer have their details and cannot trace them, will have a year from the claim starting to make a claim.

The regulator admitted that consumers can choose not to take part in the FCA’s compensation scheme and instead go to court, where they may get more or less compensation, based on the facts of their case. 

This may be seen as a complicated procedure but, unlike many firms who have offered to handle cases for a fee, the FCA compensation scheme will be without charge.

As I pointed out last week new car PCPs finance offered by manufacturers were generally subsidised by the manufacturer and are unlikely to be valid for compensation. Some people are claiming compensation, and if you wish to claim you should look at the guidelines above as to whether you are likely to have a valid claim.

I apologise for the detail but this is a complicated procedure and I hope it helps those to whom it applies.