Car finance compensation: How you can claim from £7.5bn scheme
More than 12 million motorists have been told how they could receive an average payout of £830 after being subjected to a widespread car finance mis-selling practice that lasted nearly two decades.
The Financial Conduct Authority (FCA) has published details of its plan and revealed how those affected will benefit from a payment pot that will cost lenders £7.5bn.
Firms were ordered to pay after they mis-sold car finance deals for failing to disclose crucial information to customers, which in many cases were secret commission arrangements.
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 the Schedule.
The FCA estimates firms will pay compensation of £7.5bn. The total bill, including non-compensation costs, is expected to be £9.1bn.
Who is entitled to compensation?
The regulator 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.
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.
It has now revealed exactly what conditions would make a person eligible to receive payments.
In most cases, there will be a discretionary commission agreement (DCA) where the broker can adjust the interest rate offered to the client to achieve a higher commission.
High fee arrangements worth at least 39 percent of the total loan cost and 10 percent of the loan will also be included.
Finally, agreements where there are contractual ties that give the firm exclusivity or right of first refusal are covered (unless the lender can prove that there are visible connections between the lender, the manufacturer, and the franchisor seller).
There will be some notable exceptions. Cases will still be considered fair if:
- The commission was £120 or less for deals starting before 1 April 2014, and £150 or less after that date.
- No interest was charged from the borrower.
- DCA was not used to earn additional commission.
- The lender may prove that it is fair not to disclose any of the above arrangements or that the consumer has not suffered any detriment.
Do I need to apply?
Those who believe they have been affected do not need to take action, but they may receive compensation sooner if they do. The FCA has confirmed that those who have previously complained will receive their rights as soon as possible.
The FCA recommends people complain to their lender using the template letter on its website.
David Geale, the FCA’s chief executive of payments and digital finance, said the regulator’s position remained: “If you have concerns, complain immediately.”
People who think they may have been affected but have not been contacted must file a complaint with their company by August 31, 2027.
FCA estimates uptake at 75 percent. In the rare event that all customers were to successfully apply for compensation, it would cost lenders an estimated £10bn.
How much compensation can I receive?
The FCA has confirmed that the average payout is expected to be £830.
The regulator said only a “small number” of cases would receive commission plus interest compensation.
In all other cases, consumers will receive the average estimated loss and commission paid plus interest. This has been called the “hybrid” solution and will have several caps.
According to the FCA, this was done to “ensure that consumers receiving the hybrid solution are not compensated more than those who have been treated fairly or who have suffered the greatest injustice”.
When will I receive compensation?
The FCA estimates payments could begin at the end of the year, with many continuing through 2027. Those who have not yet filed a complaint are more likely to receive their compensation by the end of 2027.
FCA chief executive Nikhil Rathi said: “There is nothing stopping lenders from acting now… now that they have seen the rules of the scheme,” adding: “I don’t think that’s very likely.”
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 should be contacted by at least December 2026.
