The details about a new motor finance compensation scheme related to car loan commission will be released soon.

What is car loan commission?

Car loan commission is the money a car dealership makes from the finance provider when they sell a loan on their behalf. The question at the heart of this is whether the dealership should have informed consumers that it will make a commission from the loan and whether the loans were inflated due to this commission.

Announcement on new motor finance scheme

The announcement will follow a six-week supreme court case. The announcement is expected sometime in July and only then will we know whether the FCA plans to introduce a redress scheme, although some kind of redress is highly anticipated. In the meantime, financial companies that are worried about how this might affect them can talk to FCA compliance consultants such as https://www.adempi.co.uk/.

Opt-in or opt-out

What we don’t know yet is whether any scheme will be opt-in or opt-out. An opt-in scheme puts the onus on the consumer, who will need to inform their motor finance company that they want to be included. An opt-out scheme is probably the better option for consumers, as it puts the onus on the motor finance industry to take the lead in the redress.

The pros and cons

What the FCA will need to balance is the importance of consumers obtaining compensation against the risk of motor finance firms being unable to survive the cost of compensation. Fewer companies in the market would, in turn, affect the level of competitiveness for future consumers and could see finance fees rise.

Additionally, the fear of another PPI situation, whereby companies profited from helping consumers make PPI claims, will affect the decision; however, early intervention by the FCA is expected to mitigate this risk.

Until we hear the outcome of the hearing, we won’t know what this scheme will look like, although it seems increasingly likely that there will be some kind of redress scheme for consumers.