Soaring costs of car loan compensation in U.K. highlight global risks from poor sales practices

U.K. motor finance companies are braced to pay out £8.2 billion in compensation for selling unfair car loans to 14 million customers between 2007 and 2024. This follows a U.K. Supreme Court ruling on Aug. 1 that the companies had broken laws and regulations by failing to disclose important information, which denied consumers the opportunity to shop around for better deals or negotiate.

Compliance managers must ensure current and future sales practices follow legal and regulatory rules, and help management prepare to meet compensation requirements. However, warnings about predatory and dishonest practices among U.S. car loan companies indicate that the problem could be global – and compliance teams in the sector worldwide should take note.

The consultation on the U.K. scheme announced by the Financial Conduct Authority (FCA) on Oct. 7 will not close until Nov 18, but the regulator has instructed exposed companies to prepare now. Direct compensation costs will be multiplied by the huge numbers of customers involved and the complexity of the administration, including tracing and contacting affected customers and processing claims.