Millions of Mis-Sold Car Finance Loans Could Trigger Compensation Payouts

Up to 14 million car finance customers, around 44% of all loans taken out between April 2007 and November 2024, are in scope for compensation averaging roughly £700 per deal under a redress scheme the Financial Conduct Authority finalised today.

The total cost to lenders sits at an estimated £8.2 billion at the lower end of projections, rising to around £11 billion once the expense of implementing the scheme and completing the reviews is included. The revised per-deal figure of around £700 represents a reduction from the regulator's earlier estimate, which had placed typical payments at less than £950 per deal. The exact amount each borrower receives will depend on the degree of harm suffered.

Four million finance agreements have already had complaints lodged against them, and those customers do not need to take any further action. For everyone else who believes they were mis-sold a car loan, the FCA's instruction is direct: contact your car loan provider, not a third-party claims management company.

The timeline from here runs in defined stages. Once the scheme receives formal approval, lenders will have three months to begin contacting affected customers, extended to up to five months for older loan agreements given what the regulator called the "scale and complexity of the scheme and in response to feedback." After that contact is made, consumers will wait up to a further three months to learn whether they are owed anything and how much. To accelerate payments, the FCA will allow those due redress to accept an offer immediately without waiting for a final determination, and will no longer require lenders to write to customers by recorded delivery. The FCA said: "Even with an implementation period, streamlining the process means millions of people would receive compensation in 2026."

The scandal centres on a practice the FCA banned in 2021: discretionary commission arrangements, or DCAs, under which car dealers received commission from lenders tied to the interest rate charged to the customer. These arrangements were routinely not disclosed to borrowers. About two million cars are sold on finance each year in Britain, with buyers typically paying an upfront deposit followed by monthly instalments including interest, meaning the pool of potentially affected consumers stretches across more than a decade of routine purchases.

A Supreme Court ruling narrowed the field of eligible claimants after the court sided with finance companies in two of the three crucial test cases it considered, reducing the scope of who qualifies relative to earlier expectations, though the scheme still encompasses a substantial share of motor finance activity across the period.

The FCA received 1,000 responses to its consultation and has faced resistance from the lending sector since the plans were first revealed. Anyone not yet in the complaints process should contact their car loan provider directly; the regulator has published separate guidance on how to complain and advises against engaging a third-party claims management firm, since doing so is unnecessary and could reduce the net value of any eventual payout.