The proposed compensation scheme for the UK's widespread car finance mis-selling scandal is facing fierce criticism for potentially short-changing millions of affected consumers. Law firm Slater & Gordon has launched a scathing attack on the Financial Conduct Authority's (FCA) plans, arguing they will systematically underpay victims.
Legal Firm Slams 'Unfair' Compensation Formula
Slater & Gordon, which represents hundreds of thousands of claimants, has accused the financial regulator of doing "a big favour to the very banks that caused the problem and that are reporting huge profits". The central dispute revolves around the hybrid formula proposed by the FCA to calculate redress for consumers who were mis-sold car finance deals with undisclosed commission arrangements.
The law firm contends that the scheme undervalues the harm suffered. "The scheme systematically undervalues the harm suffered, despite clear legal precedent indicating that full commission repayment with appropriate compensatory interest is the correct remedy," a statement from Slater & Gordon argued. They estimate that the FCA's approach will cost an estimated 14.2 million car buyers a collective £8.1 billion in reduced compensation.
The £500 Gap in Average Payouts
While the FCA has estimated that the average recipient under its scheme will receive approximately £700, Slater & Gordon asserts that a fair figure would be closer to £1,200 per person. This creates a potential shortfall of around £500 for the average victim. The scandal is poised to become the largest mass payout related to a financial product since the Payment Protection Insurance (PPI) debacle, which saw 34 million consumers receive an average of £1,000 each.
FCA Defends Simplicity and Speed of Its Scheme
In response to the criticism, an FCA spokesperson stated that the regulator is considering feedback from its consultation to refine the proposals. "Our scheme aims to be simple for people to use. That means on such a complex issue not everyone will get everything they would like," the spokesperson said.
The FCA also highlighted the alternative for consumers, noting they can choose to bypass the official compensation scheme and pursue a claim through the courts. However, they cautioned that this route is uncertain and often slower. "The outcome of a court claim is uncertain and, accounting for legal fees they may pay, many consumers could end up with less. The FCA’s scheme is also likely to be faster and simpler than going to court," the spokesperson added.
The final terms of the compensation scheme are yet to be confirmed, leaving millions of UK drivers awaiting clarity on the final settlement for one of the country's most significant financial mis-selling episodes.
