Future Motor Finance Compensation: A Smaller Ripple Than PPI in the UK

Britain's motor finance compensation scheme may be significantly smaller than the PPI redress program. The Supreme Court overturned a car finance commission ruling, sparking the Financial Conduct Authority to consider a new compensation scheme. Despite relief, banks might still face overcharging claims.

The UK's top financial regulator has indicated that any future motor finance compensation scheme for consumers would likely be minor compared to the immense payment protection insurance (PPI) redress scheme that severely impacted banks financially.

Friday's Supreme Court decision overturned a crucial ruling regarding car finance commissions, alleviating some concerns about a costly industry-wide redress scheme. However, lenders may continue to encounter claims for overcharging consumers in certain cases.

The Financial Conduct Authority (FCA) announced it would reveal by Monday its decision on whether to consult on a new redress framework. Nikhil Rathi, FCA chief executive, informed the Sunday Times that any potential compensation scheme would be considerably smaller than the 40 billion pounds ($53 billion) PPI redress experience but did not provide a specific figure. Major lenders have already earmarked nearly 2 billion pounds to address possible claims.

(With inputs from agencies.)