Early Compensation Offers May Emerge in Car Finance Mis-selling Scandal

The UK's financial regulator, the Financial Conduct Authority (FCA), has stated its support for lenders making early compensation offers to customers affected by the car finance mis-selling scandal. These offers would be welcomed, provided they do not leave customers worse off than under the FCA's proposed central compensation scheme.

The FCA's central scheme is currently facing a legal challenge, with a hearing scheduled for February, meaning compensation payments are unlikely to be made until late next year. However, some banks have confirmed they will begin making early settlement offers, with others expected to follow suit.

Highlights

• The Financial Conduct Authority (FCA) supports lenders making fair early compensation offers to victims of car finance mis-selling.
• These offers must ensure customers are not disadvantaged compared to the FCA's central scheme.
• Barclays has confirmed it will make early compensation offers, with other lenders anticipated to follow.
• Early offers are expected to reach only a minority of claimants, with most still needing to await the outcome of next year's court case.
• Customers are not obliged to accept early offers and can choose to wait for the central scheme's resolution.

Details

Stephen Braviner Roman, the FCA's general counsel, noted that fair settlement offers could result in some people receiving money sooner and that customers clearly want this choice. Customers are not compelled to accept any offers made and can choose to wait for the outcome of the legal process. The FCA will closely monitor firms making offers and expects them to be transparent about what accepting an offer entails.

Millions of drivers who took out a car loan between April 2007 and November 2024 are expected to be entitled to compensation due to the mis-selling of these loans. This primarily relates to situations where car dealers received commission from lenders based on the interest rate charged to the customer, known as discretionary commission arrangements (DCAs), which customers were often not informed about.

Compensation payouts are anticipated for approximately 12 million car loans, representing about 37% of the total number during this period. The average compensation payout is projected to be around £829.

Why it matters

This development offers the potential for victims of car finance mis-selling to receive their compensation sooner. Given the lengthy and uncertain nature of legal processes, early and fair offers could provide significant relief for those affected. However, the FCA's oversight remains crucial to protect customer rights and ensure a just outcome.