The FCA has finally given approval for a compensation redress scheme which will result in millions of individual payouts to borrowers who have been affected by unfair car loan terms.
Why are payouts being made?
The compensation scheme has been long-awaited and has come in response to the scandal that saw car dealers make a commission on overcharged loans. Full loan information was not always disclosed to borrowers, who were not given the opportunity to negotiate better terms on the loans.
Who will be making the payouts?
Just under half of the refunds, around 47%, will come directly from so-called captive lenders, the financial lending arms of carmakers that offer loans to buyers. The other half, around 53% will be paid by banks and independent lenders. Lenders who are unsure about preparing for this scheme should get in touch with FCA compliance consultants such as https://www.adempi.co.uk.
£11bn Payout
The redress scheme is expected to cost the car and banking industries as much as £11bn, although it could be more than £14bn. Most of this, over £8bn, will be from the payments themselves, while nearly £3bn will be down to administration costs.
Up to 14 million loans could be compensated, with average payouts expected to be around £700. The Financial Lending Association, which represents lenders in the car industry, claims that this could lead to more expensive loans down the road, and may even result in some lending firms going under.
The FCA redress scheme, while costly to carmakers and lenders, will compensate millions of borrowers who were sold expensive loans.