Millions of motorists are set to get an average of about £700 in car finance payouts, it emerged on Tuesday as the UK financial watchdog announced a proposed scheme. Compensation payouts on around 14 million unfair motor finance deals could start next year. The Financial Conduct Authority (FCA) estimated its redress scheme could cost lenders £8.2 billion in compensation.
This is lower than the £9billion to £18billion range it had previously projected. The payouts will affect millions of deals taken out between April 6, 2007 and November 1, 2024. Motor finance firms broke the law or its rules by not properly informing customers about commission paid by lenders to the car dealers that sold them the loan, the regulator said.
Nikhil Rathi, the FCA’s chief executive, said: “Many motor finance lenders did not comply with the law or the rules. Now we have legal clarity, it’s time their customers get fair compensation. Our scheme aims to be simple for people to use and lenders to implement.
“We recognise that there will be a wide range of views on the scheme, its scope, timeframe and how compensation is calculated. On such a complex issue, 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. That certainty is vital, so a trusted motor finance market can continue to serve millions of families every year.”
Lenders have until November 18 to respond. After that date, the FCA is expected to publish the final rules by early 2026, launch the scheme afterwards and start the payment towards late next year.
This comes after the Supreme Court sided with finance companies in two of the three crucial test cases focusing on commission payments made by banks and other lenders to car dealers.
This meant millions of drivers are not able to claim compensation for hidden commissions paid on car loans.