(qlmbusinessnews.com . Mon 4th Aug, 2025) London, UK —
Financial Regulator Sets Compensation for Mis-Sold UK Car Finance Deals
Motorists Misled on Car Finance Deals May Receive Minimal Compensation
Victims of mis-sold car finance deals in the UK may be set for compensation payouts of less than £950 per agreement following a decision by the financial regulator. Expected to commence payouts next year, the compensation scheme emerges after the Supreme Court's ruling on Friday, which found that undisclosed commissions paid by lenders to car dealers were not illegal. This verdict implies that a vast number of British drivers will be ineligible for compensation claims.
Despite the ruling, there is a glimmer of hope for those subjected to excessively high commissions. The Supreme Court has indicated these instances could warrant compensation due to their unfair nature. In response, the Financial Conduct Authority (FCA) has proposed a payout scheme estimated to cost the industry between £9 billion and £18 billion. The exact financial impact on the industry remains uncertain, though potentially millions of consumers could benefit.
The industry will bear the brunt of the scheme's total cost, inclusive of administrative expenses. The FCA has advised individuals who have already filed complaints to await further instructions, while encouraging those yet to do so to contact their loan provider directly, circumventing claims management firms.
In light of the Supreme Court's clarity on the issue, the FCA plans to consult on the eligibility criteria and compensation amounts starting in October. These discussions will take into account agreements dating back to 2007, despite concerns from the Finance & Leasing Association regarding the feasibility of such retrospective action.
The controversy stems from a court case involving Marcus Johnson, whose car loan deal included a 55% commission to the dealer, a factor deemed “unfair” by the Supreme Court. The court's decision overturned previous judgments against hidden commissions, sparking a broader debate on the legality of such practices and the rights of consumers.
This event marks a significant moment in the ongoing discussion about car finance mis-selling, which gained traction in 2021 after the FCA prohibited deals allowing dealers to earn commissions based on the loan's interest rate. The practice, known as discretionary commission arrangements, incentivised higher interest rates, affecting consumer costs.
Approximately 80,000 cases have been in limbo until the recent Supreme Court ruling, which now guides the FCA's next steps in addressing both undisclosed commissions and excessive rates alike.
The FCA, buoyed by the Supreme Court judgement, seeks to ensure those affected by such dealings are duly compensated, reflecting the varying degrees of harm suffered. As the market awaits the implementation of the redress scheme, the FCA reassures that the availability of affordable car finance options will remain unaffected, securing the future of a healthy finance market for vehicles in the UK.
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