A compensation scheme to pay out to drivers who were mis-sold car loans could cost as much as £18bn, the financial regulator has said.
Millions of drivers were denied payouts after the Supreme Court ruled on Friday (1 August) that lenders are not liable for hidden commission payments in car finance schemes.
Two lenders, FirstRand Bank and Close Brothers, challenged a Court of Appeal ruling that the “secret” commission payments paid to car dealers as part of finance arrangements made before 2021 – without the motorist’s fully informed consent – were unlawful.
After the Supreme Court’s decision the bulk of the claims will therefore not go ahead, with only the most serious claims eligible for compensation. The £18bn figure is a significant drop from the £45bn if the Supreme Court upheld the ruling in full.
The regulator said the final cost of the scheme would depend on its final design, which makes it difficult to estimate precisely.
“The FCA thinks it unlikely the cost of the scheme, including to run it, would be much lower than £9bn,” it said in a statement. “And it could be higher, up to £18bn in some scenarios, though the FCA doesn’t believe these are the most likely. A total cost midway in the range, as forecast by some analysts, is more plausible.”
Individuals are forecasted to receive less than £950 in compensation.
The consultation for payouts is due to be launched by early October, with the first payments due to be made in 2026.
Those who have already made complaints do not need to do anything further, the FCA added, and anyone who believes they were not told about commission, and believe they may have paid too much, should make a complaint now.
The FCA said consumers do not need to use a claims management company or law firm for the claim.
“It is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated. We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal,” said Nikhil Rathi, chief executive of the FCA.
“Our aim is a compensation scheme that’s fair and easy to participate in, so there’s no need to use a claims management company or law firm. If you do, it will cost you a significant chunk of any money you get,” he added.
“It will take time to establish a scheme but we hope to start getting people any money they are owed next year.”
