Finance payout worth less than £950 per deal

On Friday, when we reported on the Supreme Court’s ruling that hidden commissions on car finance were not intrinsically unlawful – except in certain circumstances, such as when said commission was deemed high enough to make the arrangement unfair – we suggested that the Financial Conduct Authority’s response would be worth keeping an eye out for. Well, it has wasted precious time in putting pen to paper: in a statement released on Sunday, it confirmed that it will consult on running a payout scheme that might end up costing the industry as much as £18 billion. 

If that sounds like a tremendous amount of money, it is – but it falls far short of the sums that might have been paid out had the Supreme Court decided that all undeclared commissions between lender and dealer were, by their nature, breaking the law. Because it did not, the FCA reckons that most of the individuals who will ultimately be covered by the new scheme will probably receive less than £950 in compensation per agreement. 

That’s based on its current estimate anyway; the FCA concedes that it cannot know for sure until the compensation plan is fully drafted, which is what the consultation – launching by ‘early October’ – is all about. Assuming it goes ahead, first payments should begin next year. To give you an idea of the leeway we’re talking about, the scheme might end up only costing £9 billion. Or more likely, someone in the middle. 

This is because it will need to balance principles ‘including fairness, timeliness and certainty’, although the FCA reiterates that providing prompt clarity to consumers, firms and investors is a priority. “It is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated,” said Chief Executive, Nikhil Rathi. “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.”

Crucially, the FCA will propose the rules on how lenders ‘consistently, efficiently and fairly’ decide whether or not someone is owed compensation and how much. If that sounds a bit like putting the fox in charge of chicken coop security, it will also be the regulator’s job to monitor if firms are obeying the rules. At any rate, the idea is that the scheme will be straightforward and painless for the people it is supposed to be compensating, without a requirement for third-party legal assistance. 

“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,” suggested Rathi. “It will take time to establish a scheme but we hope to start getting people any money they are owed next year.” If you’ve already complained, you apparently don’t need to do anything. On the other hand, if you haven’t done so previously and you believe you were overcharged, you can click here to see about raising your hand.