The Financial Conduct Authority has issued a stark warning to millions of drivers caught up in the car finance mis-selling scandal, cautioning that using claims management companies or law firms could result in losing a substantial portion of any compensation owed.
Significant Financial Risk for Drivers
Sheree Howard, executive director of authorisations at the FCA, emphasised the regulator's clear expectations for claims management companies. "We've been clear about our expectations of CMCs," she stated, adding that firms should verify customers haven't already instructed another representative before starting any case.
Howard further clarified that where individuals signed agreements without fully understanding the terms, the FCA would not expect termination fees to be charged. This guidance comes amid concerns that drivers could see their rightful compensation significantly diminished by fees charged by third-party representatives.
Millions Affected by Mis-selling
The scale of the problem is enormous, with approximately 14 million Personal Contract Purchase or Hire Purchase agreements affected between 2007 and 2024. Millions of drivers were mis-sold these finance deals, potentially entitling them to substantial compensation payouts.
Tax Loophole Concerns
City Minister Lucy Rigby faces pressure to close a concerning loophole that could allow lenders to save around £2 billion when paying compensation. The issue stems from rules introduced in 2015 that prevent banks from deducting compensation payouts from profits before calculating corporation tax.
However, many motor finance divisions are registered as "non-bank entities" despite being part of larger banking groups, placing them outside the scope of these rules. This technical distinction could significantly reduce the compensation available to affected drivers.
Government Response and Consumer Protection
A Treasury spokesperson addressed the situation, stating: "It is vital that consumers have access to motor finance to enable them to spread the cost of a vehicle in a way that is manageable and affordable. We want to see this issue resolved in an efficient and orderly way that provides certainty for consumers and firms."
Compensation Timeline and Process
Consumer champion Martin Lewis has provided updates on the expected compensation process, suggesting that motorists may receive more information this Spring after weeks of uncertainty. "I'm being asked all the time about car finance mis-selling redress," Lewis explained.
He continued: "There is nothing firm at all, but the feelers I've put out tell me they are probably going to make the announcement on the mass redress scheme in March. I would say it is at least 90% likely they will put a mass redress scheme so people can get their money back through the regulator instead of going through a claims firm."
Lewis outlined the expected timeline, explaining that those who have already submitted complaints ("opt out") will likely receive compensation more quickly than those who haven't yet taken action ("opt in"). He expressed hope that some people might actually receive money in their pockets this year, though cautioned that this isn't guaranteed.
Free Assistance Available
Importantly, Lewis emphasised that drivers don't need to pay for assistance with their claims. "If you want to put a complaint in and you want to there's free help available online, you don't need to pay anyone to get a complaint in," he advised, reinforcing the FCA's warning about avoiding unnecessary fees that could reduce compensation amounts.
The situation represents one of the largest consumer finance scandals in recent years, with the FCA taking a firm stance to protect drivers from further financial harm while they await compensation for past mis-selling practices.
