The Financial Conduct Authority of the UK is set to recommend a compensation scheme to the banks which may result in banks paying billions of pounds to the customers for mis-selling of car loans. It remains to be seen if lenders will act on their customers’ compensation claims following a Supreme Court decision next month, six weeks from now.
The scandal is based on discretionary commission arrangements (DCAs), which are car dealerships and brokers’ terms that provide interest rates on car loans without disclosing the commissions that are not disclosed. The Court of Appeal ruled in October.
If the FCA decides to pursue a redress scheme, Santander UK, Barclays, Lloyds and Close Brothers could be liable to pay £44bn. Borrowers are likely to receive, on an average, £1,100 each and companies must pay their affected customers directly, not through claims management firms.
Supreme Court will hear arguments April 1-3 to define the legal status of the DCUs. If the lenders are found to have engaged in systematic bad behaviour, the FCA is likely to demand that the industry pay for it through a collective redress scheme.
