The Financial Conduct Authority (FCA) has announced that millions of car buyers in the UK could be entitled to compensation due to past commission schemes used by vehicle finance providers. The FCA has identified potentially unfair practices related to motor finance agreements, specifically concerning discretionary commission arrangements between lenders and car dealerships. These arrangements, prevalent between 2007 and 2020, allowed dealerships to receive additional commission based on the interest rate charged to customers. The FCA believes this practice may have incentivized dealerships to increase interest rates beyond what was necessary, resulting in customers paying more than they should have for their car finance.

The FCA has launched a redress scheme to compensate affected consumers. Individuals who took out car finance agreements between April 2007 and January 2020 and paid more interest than they would have without the discretionary commission arrangements are likely eligible. The FCA estimates that up to 11 million people could be affected, potentially leading to a compensation bill of up to £3.7 billion. The redress scheme will calculate compensation based on the difference between the interest paid under the affected agreement and what would have been paid without the discretionary commission. Customers do not need to take any action at this stage. Lenders are required to contact eligible customers directly to assess their claims and offer compensation.

However, individuals can also check if they are eligible and submit a claim through the FCA’s website. The FCA’s investigation followed a review prompted by concerns raised about these commission structures. The regulator has been working with lenders to establish a robust and efficient redress scheme. The process is expected to take time, and lenders are currently assessing the extent of the impact and developing their compensation models. Further guidance and information for consumers will be released by the FCA in the coming weeks and months as the scheme progresses. Consumers with questions or concerns about their car finance agreements are advised to contact their lender or seek independent financial advice.