In a significant development for consumers, the Financial Conduct Authority (FCA) has announced plans to consult on an industry-wide redress scheme for car finance mis-selling. This follows ongoing investigations into how car dealerships and finance companies handled commissions and interest rates. However, the launch of this redress scheme hinges on an upcoming ruling by the Supreme Court, expected to shape the extent of compensation for affected consumers.
On March 11, 2025, the FCA outlined its intention to introduce a redress scheme, which would require lenders to proactively reach out to affected customers and offer compensation. Unlike previous complaint processes, this scheme would not require consumers to lodge complaints individually. Instead, companies would identify customers who qualify for compensation based on pre-set criteria outlined by the FCA. This move is expected to significantly expand the pool of eligible claimants, potentially eliminating the need for claims management firms.
Two primary issues are under scrutiny in the FCA’s ongoing review:
Discretionary Commission Arrangements (DCAs): Representing about 40% of car finance agreements, DCAs allowed brokers and dealers to increase interest rates—without informing customers—on Personal Contract Purchase (PCP) and Hire Purchase agreements before 2021. This practice resulted in hidden commissions, causing financial harm to consumers.
Commission Disclosure Failures: A landmark Court of Appeal ruling revealed that if car finance deals failed to fully disclose commission details, they were deemed unlawful. This ruling could affect up to 99% of car finance cases. The decision was unexpected, and the FCA is awaiting clarification from the Supreme Court, which will hear the case in April.
Martin Lewis, founder of MoneySavingExpert.com, has been closely following the case and provided insights into the potential outcomes. He explained that while the Commission Disclosure issue is still in legal limbo, the DCA-related redress is more likely to proceed swiftly, with an estimated payout of around £1,140 per affected agreement. If the Supreme Court upholds the Court of Appeal’s ruling, the scope of the redress scheme could expand to include nearly all car finance agreements, resulting in massive payouts.
The FCA has clarified that, should it be determined that consumers were misled, the redress scheme would provide a more efficient and consistent approach than the current complaint-led system. The aim is to ensure compensation is delivered directly by lenders, reducing reliance on claims firms, and keeping more money in the pockets of those affected.
What’s Next?
The Supreme Court’s decision, due to be heard from April 1-3, will be pivotal in determining the scope of the redress scheme. The FCA has pledged to finalize its approach within six weeks of the ruling, meaning consumers can expect clearer answers by early June 2025.
In the meantime, Martin Lewis emphasized that while the immediate need for individuals to lodge complaints is diminished, those who have already filed may still find their cases beneficial in helping firms identify affected individuals. He advised that complaints should be filed through free resources, such as those available on MoneySavingExpert.com, rather than through claims management companies, which could take a cut of any compensation.
Background and Timeline
The car finance mis-selling issue has been unfolding since January 2024, when the FCA launched its investigation into the use of DCAs. By October 2024, the Court of Appeal ruling clarified that car finance agreements could be unlawful if commission details were not disclosed. However, this ruling has been appealed by finance firms, with the Supreme Court’s hearing scheduled for April 2025. The FCA’s pause on dealing with complaints was extended in December 2024 to include all types of commission complaints, not just DCAs.
As the legal battles continue, the FCA’s proposed redress scheme, if approved, could impact millions of consumers, with payouts possibly reaching billions, depending on the court’s ruling. With consumers awaiting clarity, the upcoming decision will determine the future of this widespread issue and how car finance providers will compensate those who were misled.
Related Topics:
Global Stock Selloff Spreads to Asia as Economic Fears Intensify
Gold Holds Steady Amid Market Retreat and Growing Economic Concerns
Tesla’s Stock Struggles as Musk’s Political Involvement Fuels Investor Concerns
