TIPSLIFEHACKS

Following a landmark Supreme Court ruling, the Financial Conduct Authority (FCA) is launching a compensation scheme to address widespread mis-selling of car finance. This decision, hailed as a victory for consumers, paves the way for potentially billions of pounds in payouts to those who were unfairly treated when taking out car finance agreements.

Understanding the Issue: What is Mis-Sold Car Finance?

The core of the problem lies in how car finance companies treated commissions paid to dealerships. Between 2007 and 2020, many lenders didn't factor these commissions into affordability assessments when approving car finance applications. This meant that customers were often approved for loans they couldn't realistically afford, leading to repossessions and significant financial hardship.

The Supreme Court's ruling confirmed that these undisclosed commissions *did* impact affordability and therefore constituted a mis-selling of car finance. However, crucially, the Court also determined that the mis-selling wasn't necessarily intentional, meaning the industry avoided a 'worst-case scenario' of being held liable for deliberate deception.

Who is Eligible for Compensation?

To be eligible for compensation, you generally need to have taken out a car finance agreement between April 2007 and April 2020 where the lender didn't properly assess your ability to repay the loan, particularly failing to account for dealer commissions. This includes Personal Contract Purchase (PCP), Hire Purchase (HP), and Conditional Sale agreements.

Compensation can include:

• The difference between what you paid and what you would have paid if the commission had been factored into the affordability assessment.
• Interest you paid on the loan.
• Associated costs like repossession fees.

How the Compensation Scheme Will Work

The FCA is establishing a redress scheme to handle the claims efficiently. Here's what you can expect:

• Lenders will contact eligible customers: Lenders are expected to proactively identify and contact customers who may be entitled to compensation.
• Online Portal: The FCA will launch an online portal where customers can submit claims and track their progress.
• Dedicated Phone Line: A dedicated phone line will be available for those who prefer to speak with someone directly.
• Timeframe: The scheme is expected to be operational in late 2024, with compensation payouts potentially extending into 2025 and beyond.

What Should You Do Now?

Even if you haven't been contacted by your lender, it's important to be aware of your potential rights. Gather any documentation related to your car finance agreement, including the original contract and any correspondence with the lender.

Don’t delay! While there’s no strict deadline yet, it’s advisable to register your interest with your lender or monitor the FCA’s website for updates on the scheme. Be wary of claims management companies charging upfront fees – the FCA encourages consumers to pursue claims directly with their lenders.

Further Information

For more information and regular updates on the compensation scheme, visit the Financial Conduct Authority's website: www.fca.org.uk

Disclaimer: This article provides general information and should not be considered legal advice. It is recommended to seek professional advice regarding your specific circumstances.