Nikhil Rathi, chief executive of the FCA, said its consultation on the industry-wide redress programme that will guide lenders on how they should compensate customers that were mis-sold loans will end in early October and compensation, where it is due, can start to be paid next year.
He said the 2007 to near-2020 time frame being used for the redress scheme will cover around 30 million agreements, but warned not all of those will be eligible for compensation.
The FCA still believes its redress scheme will cost up to £18bn with compensation likely to be around £950 for claimants.
The scheme is available to individuals who were overcharged due to the use of Discretionary Commission Arrangements (DCAs), a practice the regulator banned in 2021.
Many motor finance firms were not complying with rules or the law by not providing customers with relevant information about commission paid by lenders to the car dealers who sold the loans.
Hyder Jumabhoy, partner at international law firm White & Case, commented: “As the FCA continues to look at the scope of the scheme ahead of its consultation concluding in early October, its expectation that it could cost up to £18bn in total is unchanged.
“While this estimated cost is less than originally feared, we still believe this will have significant ramifications for the UK motor finance industry. We expect this scheme will accelerate M&A activity due to some lenders having decreased risk appetite but also because of unused provision amounts that were set aside for this becoming available for acquisitions. It could also prompt some international vehicle manufacturers to enter the UK motor finance market to steady the supply of finance for buyers of new vehicles.
“All eyes will now be on the FCA as it progresses its consultation and the industry assess the implications.”
