Victims of car finance mis-selling will likely get less than £950 per deal under a compensation scheme proposed by the financial regulator, with the first payouts expected next year.
The Supreme Court ruled on Friday that hidden commissions from lenders to dealers on car loans were not unlawful, meaning millions of motorists will not be able to claim.
However, the judgement left open the possibility of compensation claims for particularly large commissions which the Supreme Court said were unfair.
Following the ruling, the Financial Conduct Authority (FCA) has said it will consult on running a payout scheme – estimated to cost between £9bn and £18bn.
The FCA said it is “hard to estimate precisely at this stage the total cost to industry of the scheme”, but it is understood that millions could be eligible.
The industry is expected to cover the full costs of any potential compensation scheme, including any administrative costs.
Those who have already complained do not need to do anything, the regulator said, advising those who have yet to complain to contact their car loan provider rather than using a claims management company.
It added that it “anticipate[s] requiring firms as far as possible to make customers aware they may be eligible and what they may need to do” and that claims “should cover agreements dating back to 2007”.
The FCA said it will start its consultation on who should be eligible for compensation and how much they should get in October, adding that the Supreme Court ruling provided “clarity”.
On Friday, the Supreme Court reversed earlier court rulings which said that hidden commissions on car loans were unlawful.
However, it ruled in favour of Marcus Johnson, saying the commission paid to the dealer was so significant – 55% of the total charge or credit including interest and fees – that it was a “powerful indication” the relationship between Mr Johnson and lender FirstRand was unfair.
The Supreme Court awarded Mr Johnson the amount of a commission plus interest.
The FCA said Friday’s judgement “helps us because we have been looking at what is unfair and, prior to this judgment, there were different interpretations of the law coming from different courts”.
