Payouts for car finance scandal will begin this year, FCA confirms

The first compensation payments for people sold unfair car finance agreements will take place this year, the Financial Conduct Authority (FCA) has today confirmed.

In October, the regulator announced that an estimated 14 million UK motorists were entitled to payouts, with each in line to receive around £700. Compensation could therefore total £8.2 billion.

The FCA has confirmed today that details of how the payout scheme will be accessed will be published this month. 

The scheme will be free to access for anyone affected and much easier than having to submit an individual claim. 

An implementation period of between three and five months will likely be introduced. After this period, lenders will tell complainants if they’re entitled to compensation.

"Even with an implementation period, streamlining the process means millions of people would receive compensation in 2026," the FCA said in a statement.

However, the £700 average is less than previous estimates by the FCA that payouts would be closer to £950. 

The car finance scandal centres on salespeople being incentivised to charge higher interest rates without the knowledge of buyers in order to pot an increased commission.

The FCA’s proposed compensation scheme comes after a Supreme Court ruling on car finance mis-selling in August last year.

While the course ruled against several cases, it ruled in some circumstances that the value of a commission for selling a finance deal and how it was disclosed pointed to an unfair relationship between banks and car dealers, which is illegal under the Consumer Credit Act.

FCA chief executive Nikhil Rathi previously said that “now we have legal clarity”, it's time “customers get fair compensation. Our scheme aims to be simple for people to use and lenders to implement".

Rathi added that there would be “a range of views” on the specifics of the scheme, including in its scope and how compensation was calculated, and said: “Not everyone will get everything they would like. But we want to work together on the best possible scheme and draw a line under this issue quickly.”

The FCA cited research that found 46% of consumers who were aware of the compensation scheme but hadn’t made a claim cited a lack of clarity on whether their claim would be eligible; 81% of those considering making a claim said a compensation scheme would give them added confidence to do so.

How the scheme will work

The compensation scheme will be open to those who took out motor finance agreements between 6 April 2007 and 1 November 2024 in which commission was payable by the lender to the broker.

Consumers who think they weren’t given key information about a motor finance arrangement they took out in that period should complain to their lender now.

While numerous claims management and law firms are offering to make claims on behalf of motorists in return for a commission, the FCA notes that consumers can submit their own complaint to lenders using a template letter available on the FCA website.