Millions of UK motorists could receive average compensation of about £700 each after the financial regulator unveiled details of a redress scheme for victims of car finance mis-selling.
The Financial Conduct Authority (FCA) said the payouts could apply to 14 million motor finance agreements signed between April 2007 and November 2024, potentially costing lenders up to £8.2bn.
The regulator had earlier estimated average payouts would be below £950 per deal.
The compensation relates to unfair commission arrangements, misleading sales practices, and inaccurate information provided by car dealers and lenders.
Under now-banned discretionary commission arrangements (DCAs), dealers could raise interest rates to increase their own commission, leaving buyers overpaying for loans.
“It’s time their customers get fair compensation,” said Nikhil Rathi, the FCA’s chief executive.
“We recognise there will be differing views on the scheme’s scope and calculations, but this process will deliver fairness at scale.”
The FCA said the scheme will be free for consumers, with about 44% of all car finance deals since 2007 expected to qualify. The process will depend on whether a consumer has already complained.
Although, existing complainants will be contacted first and could receive faster compensation.
New complainants will hear from lenders within six months of the scheme’s launch and have another six months to opt in.
Uncontacted borrowers for instance, if lenders cannot trace them will have one year to make a claim.
While consumers can choose to pursue claims in court, the FCA warned outcomes may differ depending on the facts of each case.
David Bott, senior partner at Bott and Co, representing some claimants, said: “The key test is whether this scheme delivers meaningful compensation that reflects the real harm suffered. The proposed £700 average raises questions about whether it matches the scale of wrongdoing.”
The FCA’s plan follows a Supreme Court ruling in August that narrowed the range of eligible claims. The regulator will now consult on its proposal before implementing the compensation programme.
