Two million fewer motor finance customers are set to receive compensation for the car loans scandal as the City regulator tightened eligibility for redress, but victims could on average receive higher payments.
The Financial Conduct Authority said 12.1 million vehicle loan agreements would be eligible for compensation for mis-selling, down from a previous estimate of 14.2 million.
However, the average expected payout is expected to be about £830, up from around £700.
The total bill for lenders behind the scandal is expected to be about £9.1 billion, down from previous forecast of £11 billion, the regulator said, as it outlined its final rules on the motor finance redress scheme after the London stock market closed on Monday.
The announcement could provide relief for lenders caught up in the mis-selling as the regulator curtailed eligibility for redress so only those treated unfairly receive compensation.
“The FCA has made several changes to the free-to-use [redress] scheme in response to conflicting feedback from consumers, their representatives, firms, manufacturers and industry bodies,” the authority said.
The motor finance controversy centres on commissions that lenders paid to car dealers for arranging finance on vehicle purchases that were improperly disclosed to consumers.
The proposals could still face a legal challenge by lenders and claims management companies.
Any legal challenge would be a blow to Nikhil Rathi, the chief executive of the regulator, who wants to draw a line under the long-running scandal.
Lenders ranging from Lloyds Banking Group, which has set aside the largest sum — almost £2 billion — to cover its costs for the scandal, to Close Brothers, the merchant bank, have been bracing for the authority’s verdict on the redress scheme, as have the financing divisions of carmakers including Mercedes-Benz and BMW.
Shares in Close Brothers and Lloyds had both closed higher on the London Stock Exchange, ahead of the FCA’s announcement.
This is a developing story. More to follow
