FCA to reveal compensation plan for millions over mis-sold car finance
Compensation scheme due for millions of drivers over mis-sold car finance
Millions of drivers are set to learn how they can claim compensation for mis-sold car finance when the Financial Conduct Authority publishes its final rules for a redress scheme.
The regulator is expected to set out the payout programme for 14 million motor finance agreements. The long-running saga, which has included a ruling by the Supreme Court, is likely to lead to average compensation of about £700 on many deals made between April 2007 and November 2024.
The payouts relate to commission arrangements between lenders and dealers, unfair contracts, and inaccurate information given to car buyers. The FCA has been working on a central scheme intended to avoid the need for drivers to go to court, although some may still choose to pursue legal claims in the hope of larger payouts.
Scope of the redress scheme
The FCA has previously estimated that 44% of all motor finance agreements made from 2007 to late 2024 would qualify for payouts, with total compensation exceeding £8bn. Lenders are also expected to face a further £3bn in administrative costs.
Most new cars, and many used ones, are bought through finance agreements. In 2021, the FCA banned arrangements in which car dealers received commission from lenders based on the interest rate charged to the customer. These deals, known as discretionary commission arrangements, were often not disclosed.
The regulator said that system gave dealers an incentive to charge buyers higher interest rates than necessary, leaving customers paying too much. Using the basis of court judgments, the FCA has also said other sales were unfair.
A Supreme Court ruling in August narrowed the range of claims, limiting what might otherwise have grown into a compensation bill worth tens of billions of pounds.
Industry concerns and delays
The lenders' trade body has argued that the FCA's conclusions are too broad and that compensation could be too generous. The Finance and Leasing Association said that could result in redress being paid to millions of customers who experienced no unfair relationship or no loss, diverting money away from people genuinely owed compensation.
Major lenders including Lloyds have already set aside billions of pounds. Close Brothers has cut hundreds of jobs because of its exposure to the scheme.
Many drivers have been waiting years for payouts. Thousands have already submitted complaints or begun court claims, only for their cases to be paused while the FCA completed its work.
The regulator had hoped to have the scheme running by early 2026, but delays and an extended consultation following pressure from lenders pushed that timetable back. A further concession means there will be an implementation period of three to five months before lenders must contact customers who may be eligible.
Under the current proposals, drivers will generally be contacted by their lender and invited to make a claim. Those who have already complained should receive an offer and payment sooner.
However, any payouts could be delayed again if lenders or claims management companies challenge the FCA's final decision. They will have 28 days to take a legal challenge to a tribunal, which could then proceed to a higher court before compensation is paid.