Millions of motorists mis-sold car finance deals could receive average payouts of around £700, under a compensation scheme announced by the Financial Conduct Authority (FCA) on Tuesday.
The regulator estimates that 14 million finance agreements between April 2007 and November 2024 were affected by unfair commission practices, leading to an expected £8.2 billion in redress and a potential £11 billion total bill once administrative costs are included.
The scheme, which will cover loans issued through so-called discretionary commission arrangements (DCAs), is set to become the largest financial redress programme since the PPI mis-selling scandal, when 34 million consumers received average payouts of £1,000 each.
The investigation centres on discretionary commission arrangements, a type of car finance deal banned in 2021. Under these arrangements, lenders gave car dealers the power to set customer interest rates, rewarding them with higher commissions for charging more — a structure the FCA said “incentivised overcharging” and breached fair treatment rules.
The regulator believes 44% of all car loans issued since 2007 included these unfair commission structures. Some consumers may be eligible for multiple payments if they financed more than one vehicle during the period.
“Many motor finance lenders did not comply with the law or the rules,” said Nikhil Rathi, chief executive of the FCA. “It’s time their customers get fair compensation. Our scheme aims to be simple for people to use and lenders to implement.”
The average payout per agreement is expected to be about £700, although the FCA said amounts will vary depending on loan size, interest rate and the time elapsed since overpayment.
The regulator previously indicated that most payouts would be below £950. The latest estimate reflects a narrower scope following an August Supreme Court ruling, which limited the number of eligible cases but did not halt the FCA’s independent investigation.
Compensation will include interest based on the Bank of England base rate plus 1%, applied from the date of overpayment to the date of redress.
Analysts said the scheme could rival the PPI compensation wave in both cost and scale. Around 650,000 new motor finance agreements are signed each year in the UK, the majority structured as personal contract purchase (PCP) or hire purchase (HP) deals.
The FCA said affected consumers should start receiving payments from next year, and pledged to run a national awareness campaign when the scheme goes live.
Customers who have already made complaints about discretionary commission arrangements will have their cases prioritised, while those who have previously been compensated will be excluded.
Consumer law firm Bott and Co, which has represented thousands of claimants in the car finance scandal, welcomed the FCA’s announcement but raised concerns about payout levels.
“The average payout figure of £700 raises serious questions about whether the scale of redress will match the severity of wrongdoing,” the firm said.
“The true measure of success will be whether it delivers meaningful compensation that reflects the real financial harm suffered by consumers.”
Bott and Co said the proposed scheme was a “significant step toward redress”, but warned that lenders must not be allowed to delay or limit payments through complex eligibility challenges.
The FCA’s consultation period will determine the final structure of the scheme, with implementation expected in 2025.
While the regulator said its figures remain “highly indicative and subject to change”, the £9bn–£11bn cost would make the car finance redress programme one of the largest in UK history.
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FCA unveils £9bn compensation scheme for car finance scandal victims