Car finance redress scheme details confirmed – are you due £829 on average?

Martin Lewis: "There's big news on car finance reclaiming. It's likely 12 million deals were mis-sold, and the average payout will be £830 per agreement. We have just had the confirmation of the mass redress scheme from the financial regulator, the FCA.

"Now, what's really important to understand is this is a mass redress scheme. In other words, not only will firms have to give compensation to the people who were mis-sold who've complained, they will have to try and identify everybody who was mis-sold between 2007 and 2024, contact them and pay them their money back, hence the mass scheme.

"This is unprecedented. I'm going to talk through the big picture for you, and then I'm going to get into a little bit more detail. The most important thing you need to understand is you want to be in the group that's complained, not the group where the lender's having to find you, and there are three reasons for that...

"First, you're likely to be paid out far more quickly, sometime in 2026, rather than 2027.

"Second, the lender may no longer have your details. They did destroy some, they're supposed to, data protection, so you will be far better off. And there is an easy way for you to find your details now, even if you don't have them, if you've got your details and you send in a complaint with them.

"And third, you might have changed name if you've got married. You might have moved address three times since you had the car finance, so it could be unable to track you. Whereas of course, if you complain, you'll put all your latest details in.

"As for how to complain, well, if you want to use the mass redress scheme, it's very simple. You don't need to pay anyone. I have a totally free tool on my website MoneySavingExpert.com. Just search 'MoneySavingExpert' and 'Car Finance' and there should be a picture of me at the top somewhere, which will show you that it's that.

"We've had 3.6 million complaints go through it. Most people tell me it's dead easy. You just put your details in, it formulates an email for you and tells you where to send it. You check it and you press send.

"So what type of things are included here? It's quite strict. It's motor vehicle finance, car, van, camper van, motorbike. Not caravan because it doesn't have a motor. It's specifically PCP or HP finance, not leasing. And it's between 6 April 2007 to 1 November 2024. So if you had one of those and you haven't complained, you want to complain.

"Now, it's not saying you'll all get a payout. 35% of those policies, it's thought, were mis-sold under the regulator's definition. But the important thing to understand is one of the big things that means you were mis-sold is it did one of three different forms of mis-selling. I'll go into those a bit later...

"But it didn't tell you what it was doing. It didn't disclose it to you. So the only way you can know if you were mis-sold, the only way you can know if you've got a complaint, is to complain, which is why I'm suggesting you get your complaint in now so that you can find out.

"Now, if you're sitting there going, 'I haven't got any details, can't remember who my former lender was, how will I know, it was 2011?'. There's a new, tool on the Equifax app. So that's the credit reference agency. So go get the Equifax app, sign up to its free basic account. If you're paying, you're doing something wrong, click 'Car Finance' and it will tell you all the car finance details it has for you since 2007. It isn't 100% comprehensive, but I'm getting really, really good feedback on that.

"Now, some of you watching this will have already put a complaint in and will want to know what you do. Well, it's quite simple. You will generally [be] in the complained group. So if you complained and it said you had a 'discretionary commission arrangement', that's one of those big categories of mis-selling, you're in the complained group. If they've just responded to you, acknowledged your complaint, but not dealt with it yet, you're in the complained group.

"Now, there is something that I think is a change today, but it's quite difficult to work out whether it is a change or not. And that is if you have complained, and it wrote back saying you didn't have a discretionary commission arrangement, and that's what your complaint is about, which is pretty much everyone who complained before the middle of last year when there were extra mis-selling categories added.

"Then what we're hearing is while the lenders will have to look at your complaint, you won't count as being in the complained group. You'll count as being in the not-complained group, i.e. the one that's lower, the one that you would have to opt into rather than the one you'd opt out of. So you don't want that. So if you are in that case and it told you you didn't have a DCA, you want to put in a new complaint now. And the new complaints include all of the different categories.

"Now, just as a side note, this mass redress scheme covers more people. It's likely to be simpler and easier. But there is a chance you would get paid more money if you went to court. The problem is, if you go to court, you will likely need help to do so, in which case you're going to give away 30% of what you won.

"So you need to make that decision for yourself. I'm supporting the mass redress scheme because most people tell me they just want it to be easy. And also this means vulnerable people who don't complain have a chance of getting paid out, too. That's the main stuff done. Now let me get into the nitty-gritty of the technicals that have changed today.

"Most of you can probably go at this point. If you want more details... first thing, why has the average payout gone up? Well, first of all, because the interest rate is higher. Before today, the interest rate was set at the Bank of England base rate for the year plus 1%. Now it's set at the Bank of England base rate for the year plus 1% with a minimum 3%.

"And actually for all the years from 2009 to 2022, that means there is more interest. Plus for cases before 2014, the calculation means you will get paid more. They've slightly tweaked that calculation, but the total payout is down, down from £11 billion to £9 billion, because there were more exclusions, fewer cases, and they're assuming fewer people will do this. They were assuming 85% were, now they’re assuming 75% were.

"The biggest thing in the nitty gritty that I've seen that's interesting is there is a concern this isn't a done deal, and there may be a legal challenge. And the biggest threat of legal challenge or judicial review is about cases between 2007 and 2014, which many in the car finance industry say shouldn't be included.

"So what the regulator has done that's quite clever is it's split this technically into two different schemes. You have a scheme that runs from 2007 to 2014, and the scheme that runs exactly the same from 2014 onwards, with a couple of minor technical differences about payout levels. And the reason it's done that is if there were to be a judicial review over the earlier cases, they would be put on hold, but it could still continue with the 2014 to 2024 scheme, which I think is relatively clever.

"There are a whole raft of exclusions. I think it's too much to put in the video. The big one, though, is on something called 'contractual ties', which is one of the other types of mis-selling. So a contractual tie is where you went to get your car finance and you thought you were getting the best deal from a range of different lenders, but either it only went to one lender, or one lender had first dibs on your custom.

"What they’re now saying is, if you went to a lender that was very obviously linked to the dealer, say Volkswagen dealer, Volkswagen finance, Toyota dealer, Toyota finance, Ford dealer, Ford finance, then it was obvious that it had a contractual tie, so you wouldn't have got mis-selling under the contractual tie element.

"You could have still been mis-sold on DCAs, discretionary commission arrangements. You could have still been mis-sold on the other one, which is 'unfairly high commission', but you couldn't have been mis-sold on contractual ties. There are other exclusions about people, whether the commission level was only small or their commission was basically, didn't disadvantage them compared to the market as a whole. That's cutting a few more people out, which is why it's 12 million agreements, not 14 million agreements now.

"Frankly, on all of those, I'm going to be writing this in full, this is an instant reaction, in the MoneySavingExpert weekly email that comes out on Tuesday night, tomorrow night. So that's where you're going to get the proper dotted-i crossed-t information.

"This is just the urgent briefing. I hope this helps. If you haven't complained, get onto the free complaint tool on my site and get your complaint in."