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Millions of UK consumers will have to wait longer for payouts over mis-sold car finance after the financial regulator gave banks more time to prepare for its record £11bn redress scheme.
Lenders will be allowed an implementation period of between three and five months from the launch of the scheme before they need to start contacting customers who took motor finance from them over the past two decades, under changes announced on Wednesday by the Financial Conduct Authority.
The extension to the planned scheme fulfils one of the key requests from lenders, who had warned they would not have enough time to prepare for the start of the process that is expected to cost them £11bn in total.
The long-running dispute centres on commissions paid by lenders to car dealerships when they offered loans to customers. The regulator and courts have said these were insufficiently disclosed to consumers and incentivised the charging of higher interest rates.
The FT reported last month that the regulator was planning to make changes to the scheme, including an implementation period, in response to heavy lobbying by lenders who have warned it risks hurting investment in the UK car industry.
Lenders will have a three-month implementation period, except for “older agreements”, on which they will have five months to prepare, the FCA said, without specifying how these will be defined. It has estimated 14.2mn loans dating back to 2007 will be eligible for redress.
The FCA also announced some changes to streamline the process for the 4mn consumers who have made a complaint to their lender, meaning many of them could get their money sooner.
Consumers who complain to their lender before the scheme starts will no longer have to wait as long as three months to be asked if they want to opt out of it and a further month to join the scheme. They will also be able to accept any offer immediately instead of waiting a month for a decision.
The regulator said lenders would be able to contact consumers via “a range of channels” instead of only through recorded delivery letters, as long as these came with “appropriate safeguards to prevent fraud”.
“Even with an implementation period, streamlining the process means millions of people would receive compensation in 2026,” the FCA said, adding that it would outline the final rules for the scheme around the end of this month.
The regulator said it was considering more than 1,000 responses to its redress scheme proposals and it was “likely to make several changes”. It added: “Final decisions on the scheme have not yet been made.”
It said that “anyone concerned they weren’t told about commission involved in their motor finance deal should complain now”, adding there was “no need to use a claims management company” because they could take more than 30 per cent of any compensation.
This year it has intervened with five claims management companies that were “causing harm”, it said. Two of these reduced their exit fees for consumers and four agreed to stop taking on new clients until they showed they were in line with its rules. More than 800 misleading car finance redress adverts have been removed or changed since January 2024.
