The Financial Conduct Authority (FCA) has announced that compensation payments for millions of drivers mis-sold car finance agreements will be delayed until at least 2027, with average payouts of approximately £829 expected, according to the FCA. The total cost of the compensation scheme, including administrative costs, could hit £9.1bn.
Scope and Eligibility
The FCA's decision applies to about 12 million car loans, just over 40% of the total number of agreements between April 2007 and November 2024, the regulator reported. The vast majority of new cars and many second-hand ones are bought with finance agreements, where customers pay an initial deposit followed by monthly fees with interest. Compensation could be given to many who took out a car loan within that period.
In 2021, the FCA banned discretionary commission arrangements (DCAs), where car dealers received commission from lenders based on the interest rate charged to the customer. The FCA said this provided an incentive for a buyer to be charged a higher-than-necessary interest rate, leaving them paying too much. Other car buyers were also judged to have signed unfair contracts because the commission paid to the dealer was so high — accounting for at least 35% of the total cost of credit and 10% of the loan. Some customers were not given accurate information about the best finance deal because of exclusive arrangements between car dealers and lenders.
Compensation Amounts and Total Cost
Under the FCA's latest proposals, average payouts of £829 per mis-sold agreement are expected. The total cost of the compensation, including administrative costs, could hit £9.1bn. How much individual consumers receive will depend on the degree of harm suffered. For some customers — especially if their contact details have changed — it could take many months before compensation is paid.
Timeline and Legal Challenges
Legal challenges to the scheme mean compensation calculations and payments have been delayed. The FCA outlined the following timeline for handling complaints:
| Milestone | Deadline |
|---|---|
| Non-owed complaints (by 30 June) | Told by 18 November (timing now uncertain due to legal challenge) |
| Non-owed complaints (by 31 August) | Told by 18 January 2027 |
| Early complainants | Likely to receive compensation faster |
Under its plans, lenders will respond to claims, explaining if you are owed compensation and how much — but timing of those letters is now uncertain owing to the legal challenge. Those who have not complained will be contacted by their lender and asked if they want to opt in to the scheme to have their case reviewed. Motor finance borrowers who do not receive a letter — for example because lenders no longer have their details and cannot trace them — can still make a claim.
Regulatory and Business Implications
For finance executives and treasury professionals, the FCA's compensation scheme underscores regulatory risk in consumer lending and the operational burden on lenders. The regulator urged anyone who has not yet complained to contact their car loan provider directly, rather than using a third-party claims management company. The FCA's central compensation scheme allows people to complain and potentially receive compensation without a lawyer or court process. Motorists have also been warned to be on the alert for scammers posing as car finance lenders offering fake compensation. The FCA has published guidance on how to complain. Additionally, regulators have warned claims management companies and law firms involved in motor finance commission claims to ensure consumers do not have multiple representatives for the same claim.
