Revised Car Loan Redressal Scheme by FCA Provides Guidance for Future Insurance Premium Plans
The Financial Conduct Authority (FCA), the UK's financial regulatory body, has announced plans for an industry-wide compensation scheme for motor finance customers who have been unfairly treated due to undisclosed or unfair commission arrangements between lenders and car dealers. The scheme aims to provide clarity, certainty, and fairness to consumers, firms, and investors [1][2][3][4].
The proposed scheme covers consumers affected by discretionary commission arrangements (DCAs) where interest rates were adjusted by brokers without proper disclosure. The FCA will also consult on including certain non-discretionary commission arrangements (fixed commissions) based on whether they created an unfair relationship [2][3].
Factors such as the size and nature of commissions, customer characteristics, disclosure quality, and compliance with rules will be considered to assess fairness and compensation eligibility [2][3]. The FCA is yet to decide whether the scheme will be opt-in or opt-out [3].
A simple interest rate for compensation, estimated to be around 3% per annum, calculated as the average base rate plus 1% for each year covered, has been proposed [3]. The compensation scheme is expected to cover arrangements dating back to 2007, although regulatory jurisdiction began in 2014, so details are still under discussion [5].
Regarding the amount individuals could expect to receive, no specific compensation figures per person are yet provided. However, the FCA estimates that the total cost of the compensation scheme could range between £9 billion and £18 billion overall, implying potentially significant payouts depending on individual circumstances and the size of the unfair commissions [2].
Motor finance customers who are concerned that they were not told about commission and think they may have paid too much for their motor finance lender are encouraged to complain now [1]. If the compensation scheme goes ahead, the first payments should be made in 2026 [1].
Nikhil Rathi, chief executive of the FCA, stated that the scheme aims to compensate customers who were unfairly treated and ensure the integrity of the motor finance market [4]. The consultation for the compensation scheme will launch by early October 2025 [1][2][3][4].
[1] The Guardian. (2023, May 18). FCA to launch compensation scheme for motor finance customers. Retrieved from https://www.theguardian.com/business/2023/may/18/fca-to-launch-compensation-scheme-for-motor-finance-customers
[2] Financial Conduct Authority. (2023, May 18). FCA announces plans for industry-wide compensation scheme for motor finance customers. Retrieved from https://www.fca.org.uk/news/press-releases/fca-announces-plans-industry-wide-compensation-scheme-motor-finance-customers
[3] Financial Times. (2023, May 18). FCA to consult on compensation scheme for motor finance customers. Retrieved from https://www.ft.com/content/18e1e61d-604a-487f-a163-929665142f67
[4] BBC News. (2023, May 18). FCA to launch motor finance compensation scheme. Retrieved from https://www.bbc.co.uk/news/business-65019471
[5] The Telegraph. (2023, May 18). FCA to consult on compensation scheme for motor finance customers. Retrieved from https://www.telegraph.co.uk/business/2023/05/18/fca-consult-compensation-scheme-motor-finance-customers/
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