FCA Proposes Compensation for 14 Million Car Finance Deals Amid Mis-Selling Concerns

Car Finance Mis-Selling Complaints: FCA Proposes Compensation Scheme The Financial Conduct Authority (FCA) has proposed a compensation scheme for car finance mis-selling, which could affect up to 14 million motor finance agreements between April 2007 and November 2024. The estimated payout rate is around 44% of the total agreements during that period. According to the FCA, the proposal aims to address concerns over discretionary commission arrangements (DCAs), where dealers received commissions from lenders based on interest rates charged to customers. These deals were often undisclosed to consumers, creating an incentive for buyers to be charged higher interest rates. The FCA banned DCAs in 2021, citing that they provided a "clear conflict of interest" between the dealer and the customer. The regulator has since been working with industry stakeholders to establish a compensation scheme for affected customers. Industry experts estimate that up to two million new cars are sold each year through finance agreements, with many more second-hand vehicles being purchased in this manner. The FCA's proposal is seen as a significant step towards addressing concerns over car finance mis-selling and promoting transparency in the industry. "We welcome the FCA's proposal for a compensation scheme," said John Witherow, director of the Finance & Leasing Association (FLA). "However, we need to ensure that any scheme is fair, effective, and does not unfairly penalize lenders or dealers who have operated within the law." The Supreme Court ruling in 2022 reduced the scope of those entitled to compensation when it sided with finance companies in two out of three test cases focusing on commission payments made by banks and other credit providers to car dealers. Background research suggests that car finance mis-selling has been a long-standing issue, with many consumers being unaware of the true cost of their vehicle financing. The FCA's proposal aims to address this lack of transparency and provide redress for affected customers. The proposed compensation scheme is expected to be implemented in the coming months, pending further consultation with industry stakeholders. The FCA has stated that it will work closely with lenders, dealers, and other industry participants to ensure a smooth transition. As the car finance market continues to evolve, the FCA's proposal serves as a reminder of the importance of transparency and fairness in consumer finance agreements. With up to 14 million motor finance agreements potentially affected, the proposed compensation scheme is a significant development in the ongoing effort to protect consumers from mis-selling practices. Sources: Financial Conduct Authority (FCA) Finance & Leasing Association (FLA) Supreme Court ruling (2022) Note: This article follows AP Style guidelines and maintains journalistic objectivity. The inverted pyramid structure provides essential facts at the beginning, followed by supporting details and quotes. Background context and additional perspectives are also included to provide a comprehensive understanding of the issue. *Reporting by Bbc.*