Thousands and thousands will share as much as £80m in automotive mis-selling scandal. Right here’s how they’ll spend it

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Your assist makes all of the distinction. Learn extra Thousands and thousands of motorists throughout the UK might be in line for funds of round £700 after automotive sellers mis-sold finance to earn fee. Finance suppliers stand to lose billions compensating shoppers after the scandal.

The UK regulator, the Monetary Conduct Authority (FCA), lately introduced that lenders should compensate patrons who took out finance for a brand new or secondhand automotive. Thousands and thousands paid greater than they need to have due to secret charges paid by lenders to dealerships.

For a lot of, this compensation shall be a welcome shock. For others, it will likely be hard-won compensation after an advanced authorized battle. For others nonetheless, £700 will not be sufficient compensation for the time and stress concerned – the sum is decrease than the FCA had beforehand estimated – though the full paid out may high £8 billion.

This settlement begs an attention-grabbing query. What ought to recipients do with this cash? That is hardly a trivial query. Organisations such because the Nationwide Lottery present monetary recommendation to huge winners, recognising {that a} windfall includes much more than popping the champagne corks.

Nevertheless, monetary recommendation after profitable the lottery – repay money owed, purchase a home, put money into long-term property – doesn't apply to the comparatively small sum of £700. However neither is it good to write down off £700 as if it have been solely a small win. Economically talking too, a spending increase of as much as £8 billion would present up in UK GDP figures.

<img src="https://static.independent.co.uk/2025/09/12/17/b171f19d8cd7e9b4a03e32fc8c4ead73Y29udGVudHNlYXJjaGFwaSwxNzU3Nzc2MzEw-2.6960441.jpg" srcset="https://static.independent.co.uk/2025/09/12/17/b171f19d8cd7e9b4a03e32fc8c4ead73Y29udGVudHNlYXJjaGFwaSwxNzU3Nzc2MzEw-2.6960441.jpg?quality=75&width=320&auto=webp 320w, https://static.independent.co.uk/2025/09/12/17/b171f19d8cd7e9b4a03e32fc8c4ead73Y29udGVudHNlYXJjaGFwaSwxNzU3Nzc2MzEw-2.6960441.jpg?quality=75&width=640&auto=webp 640w" loading="lazy" alt="The FCA recently announced that lenders must compensate buyers who took out finance for a new or secondhand car" class="sc-1mc30lb-0 ggpMaE inline-gallery-btn"/> open picture in gallery

The FCA lately introduced that lenders should compensate patrons who took out finance for a brand new or secondhand automotive (PA) Behavioural economists have discovered that folks’s choices about cash rely upon their psychological body of reference. In the event that they really feel like they’ve misplaced cash, their choices to save lots of or spend shall be fairly totally different to in the event that they really feel they’ve gained one thing. Exactly as a result of many individuals could have already written off the prices of mis-selling, it's probably that they'll select to spend their compensation.

The psychology of profitable might be pernicious due to what economists name “licensing” results. Licensing occurs when a earlier occasion or behaviour influences future actions. If you happen to’ve gone to the gymnasium within the morning, you would possibly select to have a dessert within the night – however solely since you went to the gymnasium.

Likewise, should you “win” £700 you had mentally written off, you'll be extra inclined to purchase stuff you would in any other case keep away from. On this psychological state, small luxuries like consuming out or shopping for designer sneakers are more likely to really feel extra tempting. In a short time, that £700 may disappear.

Concerning the writer Stuart Mills is an Assistant Professor of Economics on the College of Leeds.

This text is republished from The Dialog below a Inventive Commons license. Learn the unique article.

Spending cash just isn't a nasty factor. It's only via spending that the financial system grows, which to a lesser or higher extent advantages everybody. And utilizing the cash to put money into a brand new interest, as an example, is more likely to be personally rewarding in methods a chilly monetary outlook fails to understand.

Get a free fractional share value as much as £100.Capital in danger.

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However there's additionally a extra sympathetic and fewer explored perspective. Somebody would possibly perceive what they should do financially, however fairly resolve that £700 just isn't definitely worth the effort. For instance, incomes 3% on £700 means subsequent yr you’d be £21 richer, ignoring inflation. From this attitude, it's affordable – if not economically rational – to resolve spending is preferable to saving.

A rising problem

The query of how one can use a windfall is fascinating as a result of it’s an instance of one thing economies just like the UK are going to see much more of within the coming a long time. The motion of wealth from retirees to their grownup youngsters (these aged round 30 to 50) has been referred to as the best wealth switch in human historical past.

It’s not going to be an excellent switch. Some millennials will obtain monumental sums as their mother and father go on homes and financial savings pots. Others will obtain little or no. However a big group will obtain one thing within the center – an surprising windfall, too giant to write down off however too small to put down new monetary roots by shopping for a home, for instance.

Within the years forward, what this group does with its slice of a generational inheritance will form the monetary panorama of the UK, and plenty of extra nations, too.

This £700 settlement is due to this fact an attention-grabbing instance. Whereas folks could really feel they know what they should do with surprising cash, behavioural economics can inform us what folks in all probability will do.

<img src="https://static.independent.co.uk/2025/09/26/15/34/iStock-618982838.jpg" srcset="https://static.independent.co.uk/2025/09/26/15/34/iStock-618982838.jpg?quality=75&width=320&auto=webp 320w, https://static.independent.co.uk/2025/09/26/15/34/iStock-618982838.jpg?quality=75&width=640&auto=webp 640w" loading="lazy" alt="Investing in a new hobby could pay dividends that traditional financial metrics can’t measure" class="sc-1mc30lb-0 ggpMaE inline-gallery-btn"/> open picture in gallery

Investing in a brand new interest may pay dividends that conventional monetary metrics can’t measure (Getty/iStock) The “ought” relies on somebody’s monetary circumstances. For these set to obtain £700, it is likely to be a good suggestion to not deal with it as a windfall. That they had in all probability mentally written it off, so in the event that they keep away from seeing it as a achieve, they're extra more likely to repay money owed or put it aside.

Funds may begin coming via from early subsequent yr. With that in thoughts, one other smart place for a lot of to “make investments” £700 is likely to be in credit score with their vitality provider. This might easy out monetary bumps within the street, given rising vitality prices.

Many individuals dislike saving as a result of it might really feel like shedding cash, as they're transferring the funds from a “fungible psychological account” – the place they'll do something with it – to a “non-fungible psychological account” (akin to a rainy-day fund).

For economists, examples like a £700 compensation are fascinating as a result of they expose parts of human behaviour that we're all responsible of.

However this compensation scheme can be more likely to be a precursor to a a lot larger financial phenomenon. What's going to folks do once they all of a sudden obtain a sum that’s too huge to disregard however too little to alter their monetary foundations?