The Financial Conduct Authority (FCA) has indicated that a compensation scheme addressing the mis-selling of car loans could amount to as much as £18 billion.
As reported on Friday, the Supreme Court ruled that hidden commissions paid by lenders to car dealerships were not inherently unlawful, thus precluding compensation claims for many motorists.
However, the ruling did not eliminate the possibility of compensation for instances involving particularly large commissions, which the Supreme Court deemed unfair.
In response to the ruling, the FCA announced it will consult on the implementation of a compensation scheme, with estimated costs ranging from £9 billion to £18 billion.
The FCA anticipates that “most individuals will probably receive less than £950 in compensation,” with initial payouts potentially occurring next year, contingent upon the scheme’s approval.
The regulatory body has stated that those who have already filed complaints need not take further action. Individuals who have not yet complained are advised to contact their car loan provider directly, rather than engaging with claims management companies.
The FCA will initiate a consultation process to determine eligibility criteria for the compensation payouts, noting that the Supreme Court’s ruling provides “clarity” on the matter.
On Friday, the Supreme Court overturned prior court decisions that had declared hidden commissions on car loans unlawful.
However, the court sided with Marcus Johnson in a specific case, citing that the commission paid to the dealer – constituting 55% of the total charge, including interest and fees – was a “powerful indication” of an unfair relationship between Mr. Johnson and lender FirstRand.
The Supreme Court awarded Mr. Johnson the commission amount, plus interest.
The FCA stated that Friday’s judgment “helps us because we have been looking at what is unfair and, prior to this judgment, there were different interpretations of the law coming from different courts”.
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