Millions of UK motorists could receive automatic compensation for mis-sold car finance deals under new plans being developed by the Financial Conduct Authority (FCA). The financial watchdog aims to introduce an industry-wide redress scheme, which would require banks and lenders to identify and compensate affected customers without the need for them to file claims.
FCA Pushes for Automatic Compensation
Currently, consumers must actively submit complaints to seek refunds for mis-sold loans. However, the FCA’s proposed overhaul would shift the responsibility onto lenders, ensuring that borrowers are directly compensated if they were unknowingly charged excessive interest rates.
The move follows a year-long FCA investigation into hidden commission arrangements between banks and car dealerships. These agreements allegedly allowed dealers to increase interest rates on car loans, with higher rates leading to bigger commission payouts. Many customers were unaware of these financial incentives, which may have led them to overpay on their car loans.
The Supreme Court is expected to rule next month on whether car finance agreements were widely mis-sold. However, the FCA’s redress scheme will specifically target loans linked to “discretionary commission” arrangements, which encouraged dealers to charge higher interest rates at borrowers’ expense.
Lenders Brace for Billions in Compensation
Major lenders have already started setting aside billions of pounds to cover potential payouts. Lloyds Banking Group has reportedly allocated billions, while Close Brothers has set aside hundreds of millions to address the growing scandal.
The final details of the FCA’s compensation plan are expected to be announced later this year, following a delay from its initial May launch date. If implemented, the scheme would streamline the compensation process, ensuring affected customers receive refunds without having to navigate complex claims procedures.
Consumer Advocates Welcome the Move
Consumer groups have long pushed for an automatic redress system, arguing that many affected drivers may be unaware they were mis-sold loans or lack the knowledge to file claims independently.
Molly Preleski, of PA Consulting, praised the FCA’s approach, stating: “This scheme should help ensure that where consumers have lost out, redress won’t be dependent on them taking action to complain.”
She also noted that the plan would reduce speculative claims from customers who were not actually affected by mis-sold loans.
As the FCA moves toward finalizing the scheme, millions of motorists could soon see compensation land in their accounts—without ever having to submit a claim.