UK car finance firms mull payouts for mis-selling scandal

Car finance companies in Britain are discussing whether they should offer consumers compensation for a 17-year mis-selling scandal despite legal challenges casting uncertainty over a £9.1 billion redress scheme.

Financial Conduct Authority CEO Nikhil Rathi said in a letter published yesterday that such offers could include cases where there was strong evidence that commission arrangements between lenders and car dealerships had not been properly disclosed.

“Some firms have said they want to resolve these liabilities now and they are exploring whether they can make settlement offers on complaints that would have been dealt with through the scheme if it were not for the legal challenges,” he said in the letter to the parliamentary Treasury Committee.

The FCA declined to comment further.

The regulator accuses the industry of inadequately disclosing commissions and contractual ties between lenders and car dealerships that it said encouraged brokers to hike interest rates on loans between 2007 and 2024.

It was keen on a quick resolution and had hoped for the first consumer payouts to begin this year.

But legal challenges to the redress scheme, filed by the financial services arms of Volkswagen, Mercedes-Benz, Credit Agricole and consumer group Consumer Voice, will delay compensation to at least 2027 if the scheme is upheld, the FCA says.

If judges rule the scheme unlawful or unfair, the FCA might either re-cast its plans or let consumers resolve complaints through the Financial Ombudsman Service or courts. The case is not expected to be heard before October.

The majority of the motor finance industry, which includes banks such as Lloyds, Barclays, Santander, Bank of Ireland and Close Brothers, did not challenge the scheme, although some questioned whether its scope would allow motorists who had suffered no losses to end up with compensation.

Others warned it would harm investment in the UK auto industry or that it undercompensated consumers.

Rathi, however, said the FCA remained focused on getting consumers compensation they are owed as quickly as possible.

“We welcome ideas from firms and consumer organisations on how, despite the legal challenges, firms who want to should be able to start paying fair redress now,” he said.

“Where we can, we will help make that happen in a way that is fair, transparent and consistent for consumers,” he added.