Martin Lewis: Why likely car finance payouts look less than they did

Yet I’m reading quite a number of people disappointed at the level of payout, as some were expecting more and I wanted to try and quickly bash out a rough and ready explainer of what’s going on. There are three main reasons, though to get this you’ll need to know what’s going on, so if you’re unsure it’d be worth having a listen to my car finance reclaiming podcast first. So on to those three reasons:

1. The original figure was based on a different calculation, and the FCA had never said it would use it. The original £1,200 per person figure bandied about when the FCA first launched its consultation was what people would get if the Financial Ombudsman's calculation method was used... ie, you'd the interest charged over the minimum you could've been charged back.

Even back then I wrote there was absolutely no reason to assume the FCA would follow this and it could well use a lower calculation. My guess was it'd be similar to the Plevin PPI case... (the interest charged over a fair market interest).

And in very broad terms that's what it has done. It has said in most cases you will get the mean average of 17% of the interest (which is basically the interest you were charged minus what it thinks is a fair interest rate) and the total of the commission – ie, you’ll get the middle of those two sums.

2. The FCA is communicating a different measure now to what it said a couple of months ago. The FCA has used a different measure for what it's saying now to after the Supreme Court hearing a couple of months ago.

- Then it said claims will likely be less than £950

- Now it says claims will be an average £700.

These two are not inconsistent, but all people are picking up is "it was £950, it's now £700". Now this is pure supposition, but my suspicion is the reason the FCA used the ‘less than’ figure after the Supreme Court decision is likely as it hadn’t decided on its redress calculation.

If it had decided to give the full commission then that would’ve been nearer £900 average, so I’m guessing it gave itself wriggle room to decide. Ultimately the number it came up with is likely a compromise and trying to set at a level that gets its scheme out there without the threat of judicial review from car finance firms.

It says most people will get 2/3 or more of the commission that was added onto their agreement.

3. Claims management firms have been hyping up their own numbers. Claims management firms have been hyping up the amounts people could get, especially before the Supreme Court ruling (the judge there gave them a bit of a telling off for it).

Though its also true that those who

a) Go to court and

b) Succeed

may well be awarded more than going for the FCA claims route. Though to do that most will need pay lawyers/claims firms a 30% cut of it.

And that difference is arguably the cost of the easy simple reclaim system the FCA has put out and the more militant and riskier but possibly more lucrative route of going to court.

In my view, based on a large amount of feedback, most people, and most of my site's users, will want the no-hassle route, and I'll be focusing on that (though I will of course explain there is a court option.)

PS. Though if the lenders start to push back on this, or challenge the FCA's mid ground in court, then if they go militant, it may be time to consider suggesting people go to court instead. I hope we don't get to that and the firms realise the best thing to do is get on with this, accept this middle ground, pay people out, and all move on.