MARTIN Lewis has shared huge news for anyone who has bought a car on finance in recent years, about compensation for millions of people who bought a car on finance.
Taking to Twitter/X, the Money Saving Expert founder has shared a number of updates: "The FCA has just put out a statement saying it will consult on 'an industry-wide redress scheme.' Now, ‘consult’ is mostly technical, this really means its made up its mind."
He added: "It plans a section 404 redress scheme that will require lenders to proactively contact all borrowers who met the miss-selling criteria and offer them a fixed redress based on FCA rules.
"Therefore, people won't need to complain, they will be paid out an amount dictated by the FCA to firms based on their situation. This likely stretches the net of who’ll be paid far wider (and means there’s no need to use claims firms)."
This news refers to two main types of car finance miss-selling
The first is Discretionary Commission Arrangements (DCA).
Discretionary Commission Arrangements (DCA)
This is about 40% of car finance deals and applies where brokers and dealers could increase the amount of interest they charged customers (without telling them) on PCP and Hire Purchase agreements up to 2021 in order to increase their commission.
"This is the one I have been talking about and suggesting people complain about," says Lewis. "If you’re one of the 2 million who has put complaints in through my site, then it is very likely it was a DCA complaint."
The second type is Commission Disclosure complaints.
Commission Disclosure complaints
"These are based on the Court of Appeal surprise ruling that if car finance agreements didn't tell consumers all details of commission including the amount (they rarely did) they were unlawful," he says. "It applies to up to 99% of car finance cases (including DCA cases).
"The Court of Appeal ruling took everyone, including the regulator by surprise and was not something it was looking at.
"Even I have concerns the decision risks doing more harm than good. It has been appealed to the Supreme Court which is due to be heard on 1 to 3 April. The redress paid out will depend on the Supreme Court decision…
"It’s important to remember while Commission Disclosure complaints are all about the Courts, DCAs were about a breach of the FCA regulations."
The regulator can’t act until it has clarity from the court.
"Of course no one knows what the court will say, but let me try and give three rough scenarios…," he says.
"Most likely outcome. Many expect the Supreme Court to overturn the Court of Appeal ruling on Commission Disclosure complaints. If that happens then the redress scheme will only be set up for DCA complaints.
"This is still huge and the fact the payouts will be automatic means it would reach more people and likely be in the billions to low £10s billions (depending on payout size)."
If the Supreme Court upholds the Court of Appeal ruling, then the FCA would set up a redress scheme.
"This would be huge, have impacts on the economic competitiveness, and could be at PPI scales of redress, running into the £10s of billions," adds Lewis. "If so, it is not impossible we would see the government intervene with legislation."
There is also the possibility that the Supreme Court will rule out the Commission Disclosure complaints and make a pronouncement within that which causes the regulator to rethink on whether DCA complaints are justified.
"That could mean no redress at all, but I think this is pretty unlikely," says Mr Lewis. "How much will people be paid out? I hear work is being done at the FCA on the level of compensation for DCA claims, yet from what I understand no decision has been made yet."
He concludes: "My pure guess is it will be:
Method 1: All the extra interest that was charged due to the DCA comes back. This would typically be around £1,400 per arrangement.
Method 2: It may set up a ‘fair interest rate’ (for those in the know, mirroring Plevin in PPI) and only refund amounts above that. This would therefore result in a lower payout than the first method."
Is it worth complaining now?
The regulator is signalling its strong intention that it will make lenders contact customers, so there may not be a need to complain.
But, putting complaints in may be helpful for firms to know who is affected.
"So you may still want to do it, I just wouldn’t do it via a claims firm (as we don’t know yet if you’ll still have to give a cut to the claims firm under an automatic redress scheme," he says. "It’ll likely depend on the contract you signed) just do it via free tools like the one I have on MoneySavingExpert."
When will customers hear if they are being contacted?
The Supreme Court will hear the case in early April, then likely take a few weeks to decide.
The FCA will then put together its redress scheme within six weeks, so it'll likely be towards the beginning of June.
