Car finance scandal compensation scheme revealed for millions of UK motorists
The Financial Conduct Authority (FCA) has published details of its compensation scheme for millions of people for mis-sold car loans, following a lengthy consultation process.
Nearly 12 million drivers are now queuing for payout following a systematic problem that has seen them mis-sell car finance deals, often due to secret kickback arrangements.
The regulator confirmed they will receive an average payout of £830 each and they should be contacted before the end of 2026.
There will be two schemes, one for deals made between 6 April 2007 and 31 March 2014 (Scheme 1), and the other for deals made between 1 April 2014 and 1 November 2024 (Scheme 2).
An implementation period was set for companies to prepare to meet the set deadlines; most by June 30, 2026 for those in Schedule 2 and August 31 for those in Schedule 1.
The FCA told firms they should identify and contact those affected and ask if they would like to receive compensation. Lenders will have three months from the end of the implementation period to do this.
This means most affected people must be contacted by at least December 2026.
Those affected do not necessarily need to complain, but the FCA has confirmed that those who have already made complaints are likely to receive compensation sooner.
People who thought they might have been affected but were not contacted were given until August 31, 2027 to file a complaint with their companies.
In an update earlier in the month, the Council watchdog said it had received 1,000 responses to the compensation scheme proposals, which had received some pushback from the credit industry, since the plans were first announced.
The FCA estimates firms will pay compensation of £7.5bn. The total bill to be paid to firms, including non-compensation costs, is expected to be £9.1 billion.
The plan will cover auto financing deals made between April 6, 2007 and November 1, 2024, and approximately 44 percent of the deals are expected to be made during this period.
The regulator has previously said car finance firms and lenders were breaching the law and FCA rules by failing to properly inform customers about the commission lenders pay to car dealers who sell them the loan.
This is because some companies’ ‘discretionary commission arrangements’ with brokers give them the power to set interest rates for customers on Personal Contract Purchase (PCP) and Hire Purchase agreements.
As a result, many drivers did not have the opportunity to negotiate or find a better deal, and so they may have paid a higher interest rate on their loans.
This also created an incentive to maximize the rate offered, as these brokers earned more commissions from higher rates. An estimated 40 percent of auto finance deals were thought to be affected by this issue.
In a separate update on Monday, the FCA said it had launched a working group to tackle “poor practice” by some claims management companies and law firms in relation to car finance claims.
Alison Walters, consumer finance director and FCA taskforce leader, said: “Our scheme will be free and people will not need to use a CMC or law firm. If they decide to do this, it is important that they trust CMCs and law firms to act in their best interests. This taskforce will ensure we deal with issues quickly and decisively.”
