Drivers have been warned to be on the alert for fraudsters posing as car finance lenders offering fake compensation.
The Financial Conduct Authority (FCA) says it has received reports of scammers calling people and offering money in exchange for personal details such as their name, address, date of birth and bank information.
The warning comes after the FCA announced it would set up a compensation scheme for motorists who were sold car finance deals that were unlawful. Eligible people could get a payout of up to £950.
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Despite the Supreme Court partially overturning a judgment calling for redress on 1 August, the financial regulator said it will consult on an industry-wide compensation scheme for people who bought motor finance that failed to provide customers with information on the commission paid by lenders to car dealers.
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The consultation will be published by early October, with stakeholders given the opportunity to provide their views.
The FCA said it expects that if a compensation scheme goes ahead, it could cost between £9 billion and £18 billion.
Why is the FCA looking at setting up a car finance compensation scheme?
Earlier this month, the Supreme Court judgment said that in many cases, commission paid by lenders to car dealers for organising loans was legal.
However, it also ruled that, in some cases, motor finance firms were not complying with rules and failing to properly disclose commission arrangements that may have been both unfair and unlawful.
While the court overturned a previous ruling by the Court of Appeal that awarded compensation to three cases, the Supreme Court upheld one of them, leaving the door open for redress in certain cases.
The FCA is now looking at setting up a compensation scheme. As part of that, new rules will be proposed to guide how lenders should “consistently, efficiently, and fairly” decide whether or not someone is owed compensation, and how much this will be. The FCA says it will monitor if these firms are following the rules and will act if they are not.
Nikhil Rathi, chief executive of the FCA, said: “It is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated.
“We also want to ensure that the [motor finance] market, relied on by millions each year, can continue to work well and consumers can get a fair deal.”
Rathi said the FCA is aiming for a compensation scheme that’s “fair and easy to participate in” and urged consumers not to use a claims management company or law firm, as this could cost a significant chunk of potential compensation awarded.
It’s not been decided whether it will be an “opt in” or “opt out” compensation scheme.
“It will take time to establish a scheme, but we hope to start getting people any money they are owed next year,” Rathi added.
Car finance scam warning
The FCA has issued a warning about scammers calling people and offering them fake compensation.
It says this is obviously fraud, as no compensation scheme is currently in place yet, and car finance lenders are not yet contacting customers about compensation.
Nisha Arora, director of special projects at the FCA, said: “We’re aware of scammers calling people and posing as car finance lenders, offering fake compensation and asking for personal details.
“If anyone receives a call like this, hang up immediately and do not share any information.”
More information on how to protect yourself from scams is available on the FCA's website. Scam calls and texts should be reported to Ofcom by forwarding them to 7726.
Who could be eligible for car finance compensation?
As the details of a compensation scheme are yet to be determined, the exact group of people eligible for such a scheme is unknown.
However, the FCA has outlined some criteria that it thinks the scheme should cover.
For example, the regulator thinks that agreements as far back as 2007 should be included to make the scheme comprehensive and ensure consumers do not have to use other routes to secure compensation.
Furthermore, the FCA has proposed that the redress scheme covers discretionary commission arrangements (DCAs), where the broker could adjust the interest rate offered to a customer, if they were not properly disclosed.
If you are concerned you were not told about commission and think you paid too much for your motor finance, the regulator recommends you complain now.
The FCA has a guide explaining how to raise a complaint. It's possible to do this yourself. The FCA warns that using a claims management company or law firm to make a complaint could cost you around 30% of any compensation paid.
How much compensation could motorists get?
The FCA estimates most eligible individuals will probably receive less than £950 in compensation per car finance agreement.
The regulator said in a statement that its “methodology for calculating redress will be informed by the degree of harm suffered by the consumer and the need to ensure consumers continue to be able to access affordable loans for motor vehicles”.
Compensation could also be boosted as interest is normally paid on redress awards – the FCA says this will likely be based on the average base rate that year plus 1%.
This means it would be in “the ballpark of a simple interest rate of 3% per annum”, according to the regulator.
When could a compensation scheme be opened?
As mentioned previously, the FCA’s consultation on the compensation scheme will be launched by early October.
The consultation is set to be open for six weeks before a decision over the proposed scheme is made.
If a redress scheme does go ahead, the FCA says it expects the first payments to be made in 2026.
