Car finance compensation payments delayed until next year

Image source, Getty ImagesByKevin PeacheyCost of living correspondentPublished13 November 2024Updated 3 minutes agoMillions of drivers who were mis-sold car finance agreements must wait until at least 2027 to receive compensation, regulators have announced. Average payments of about £829 are expected under the rules published by the Financial Conduct Authority (FCA). However, legal challenges to the scheme mean compensation calculations and payments have been delayed. The vast majority of new cars, and many second-hand ones, are bought with finance agreements. Customers pay an initial deposit to secure the vehicle, then a monthly fee with interest. Compensation could be given to many of those who took out a car loan between April 2007 and November 2024. The decision by the FCA, the financial regulator, applies to about 12 million car loans - just over 40% of the total number during the period. In 2021, the FCA banned deals where car dealers received commission from lenders, based on the interest rate charged to the customer. These were known as discretionary commission arrangements (DCAs) and customers were often not told about them. The FCA said this provided an incentive for a buyer to be charged a higher-than-necessary interest rate, leaving them paying too much. Other car buyers were also judged to have signed unfair contracts because the commission paid to the dealer was so high - accounting for at least 35% of the total cost of credit and 10% of the loan. Some customers were not given accurate information about the best finance deal because of exclusive arrangements between car dealers and lenders. Under the latest proposals, the FCA expects average payouts of £829 per mis-sold agreement. The total cost of the compensation, including administrative costs, could hit £9.1bn. How much individual consumers receive will depend on the degree of harm suffered. For some customers - especially if their contact details have changed - it could take many months before compensation is paid. Complaints have already been made about four million finance agreements. Those people do not need to do anything. The regulator urged anyone who has not yet complained to contact their car loan provider directly, rather than using a third-party claims management company. The regulator's central compensation scheme allows people to complain and potentially receive compensation for mis-sold deals without the need for a lawyer or to go through the courts. Motorists have also been warned to be on the alert for scammers posing as car finance lenders offering fake compensation. The FCA has published this guidance on how to complain, external. lenders will contact those who have already complained, following an implementation period of the scheme those who complain before the scheme gets up and running are likely to receive compensation faster those who have not complained will be contacted by their lender by the end of the year for agreements made after 2014, or by the end of February 2027 for older cases. People will be asked if they want to opt in to the scheme to have their case reviewed those motor finance borrowers who do not receive a letter - for example because lenders no longer have their details and cannot trace them - can make a claim until the end of August 2027 Regulators have warned claims management companies and law firms involved in motor finance commission claims to make sure consumers do not have multiple representatives for the same claim and are not charged excessive termination fees. FCA boss Nikhil Rathi told the BBC's Today programme there are "many law firms out there who would like to get 30% of any compensation", stressing that the regulator's scheme was "free to use" for consumers. Millions of drivers were in line to receive compensation this year, and most of the remainder should have got compensation by the end of 2027. But the FCA has confirmed that no compensation will be paid before 2027 as a result of legal challenges to the scheme. Consumer Voice said the scheme left "too many people short-changed". The FCA has also received challenges from three lenders: Volkswagen Financial Services, Mercedes Benz Financial Services, and Credit Agricole Auto Finance. The UK's Upper Tribunal has agreed to hear legal challenges to the scheme, either in December or February next year. It means that lenders will no longer need to calculate or pay compensation to people owed money under its scheme, until the legal process concludes. The FCA said it will need to decide what to do next if the courts decide to overturn the programme. It said it would "defend the scheme robustly as lawful and the best way to resolve such a widespread, long running and complex issue". Ultimately, the industry is expected to cover the full costs of any compensation scheme, including any administrative costs. Lenders - including some of the UK's biggest banks and specialist motor finance firms - have already s

Car finance compensation payments delayed until next year

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Car finance compensation payments delayed until next year

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