FCA proposes compensation scheme for unfair motor finance agreements

The UK's Financial Conduct Authority (FCA) has put forward a proposal for a compensation scheme under which payouts related to an anticipated 14 million unfair motor finance agreements may commence next year.

This scheme, if approved, is set to disburse an estimated £8.2bn ($11bn) to consumers who were disadvantaged by nondisclosure of critical information in their finance agreements.

The reported lack of transparency has prompted FCA to suggest average payouts of about £700 per affected agreement.

Research by FCA indicates that nearly half of the eligible consumers who have not filed claims are hesitant due to unclear eligibility criteria while almost a quarter are uncertain about the compensation amount.

The proposed scheme aims to offer a no-cost solution for consumers and would be economical for companies compared to the more burdensome court or Financial Ombudsman Service processes, according to the body.

FCA is currently inviting feedback on the scheme.

Eligibility for the scheme would include motor finance agreements dating from 6 April 2007 to 1 November 2024, where a commission was paid by the lender to the broker.

FCA chief executive Nikhil Rathi said: “Many motor finance lenders did not comply with the law or the rules. Now we have legal clarity, it’s time their customers get fair compensation. Our scheme aims to be simple for people to use and lenders to implement.”

FCA advises consumers who suspect they were not fully informed about their agreements to lodge a complaint with their lender, providing a template letter on the FCA website to facilitate this process.

It also clarifies that individuals are not required to engage claims management companies or lawyers to submit a complaint, which could result in a reduction of the final compensation due to fees.

Instead, consumers can directly use the resources provided by FCA.

Once the scheme is active, lenders will contact consumers who have not yet complained within six months of the scheme's start, offering them the opportunity to have their cases reviewed if they opt into the scheme.

They will be given six months to respond. For those who do not receive a letter from their lender, there will be a one-year window from the start of the scheme to submit a claim directly to the lender.

"FCA proposes compensation scheme for unfair motor finance agreements " was originally created and published by Motor Finance Online, a GlobalData owned brand.

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