5:17 pm, March 30, 2026
Millions of car drivers who took out motor finance are set to receive payouts this year after the Financial Conduct Authority (FCA) confirmed a sweeping compensation scheme for mis-sold agreements.
Announcing the final details this afternoon (Mar 30) after the markets had closed, the watchdog said the average payout will be around £830 – higher than it previously stated.
However, fewer consumers will get pay-outs as the scope of the scheme has been reduced.
The FCA expects 12.1m consumers will now get cash and the total bill for the industry is likely to be in the region of £7.5bn – down from a previous estimate of around £10bn.
Consumers will not know up front how much money they are owed as the lenders will calculate the amount.
The amount will be calculated on how much commission was paid, how much extra interest was paid, plus 3% interest per year on top.
Consumers can choose not to take part in the FCA’s compensation scheme and instead go to court, where they may get more or less compensation, based on the facts of their case.
However, the outcome of a court claim is uncertain and accounting for legal fees they may pay, many consumers could end up with less. The FCA’s scheme is also likely to be faster and simpler.
Announcing the move, Nikhil Rathi, chief executive of the FCA, said: ’We’ve listened to feedback to make sure the scheme is fair for consumers and proportionate for firms. It will put £7.5bn back into people’s pockets.
‘Now we need everyone to get behind it and ensure millions get their money this year.
‘Payouts should not be delayed any longer, especially as household bills come under greater pressure.
‘Delivering compensation promptly also gives lenders the chance to rebuild trust, and means we can draw a line under the past and support a healthy motor finance market for the future.’
The detail
The compensation scheme will cover loans taken out between April 6, 2007 and November 1, 2024.
People will only be compensated if they were not told clearly that either:
– Their dealer or broker set the interest rate to earn more commission (using a discretionary commission arrangement (DCA)
– The commission was high – at least 39% of the total cost of credit and 10% of the loan.
– The dealer or broker was using one lender or gave one lender the right of first refusal, (a so-called tied arrangement), except where lenders can evidence that there were visible links with a manufacturer and franchised dealer. For example, where they shared a common or similar name.
Those consumers who have already complained to their lenders will be compensated first.
Lenders will review their cases, tell them if they are owed money and then process pay-outs.
If consumers haven’t complained, lenders will contact them if they think they are owed money directly, but car owners can still make a claim themselves until the end of August 2027.
Compensation will be worked out using a formula – not on a case by case basis – and interest will be paid at a rate of 3% per year. It’s likely most people will know how much they are owed later this year.
Very high value loans are excluded from the scheme or cases where the commissions paid were very small, no interest was charged or the lender can prove there was no financial loss.
Money will be paid out directly by lenders and consumers will not need to use lawyers or claims management firms to get their cash.
Consumers will not be put back into a better position than ‘if they had been treated fairly’ in the first place, said the FCA.
Giving advice to consumers, the FCA added: ‘If you are concerned you were treated unfairly, make a complaint. People who complain before the relevant implementation period ends will be compensated sooner.
‘There is information on how to complain for free on the FCA website. There is no need to use a claims management company or law firm. If you do, you could lose over 30% of any money you get. ’
Along with the announcement, the FCA revealed it will join forces with solicitors, advertising and data protection to tackle ‘poor handling of motor finance claims by some claims management companies and law firms’.
Alison Walters, director of consumer finance and FCA taskforce lead, said: ‘Our scheme will be free and people don’t need to use a CMC or law firm.
‘Should they decide to do so, it’s important that they can trust CMCs and law firms to act in their best interests. This taskforce will ensure we deal with problems quickly and decisively.’
Rachael Jones, director of automotive finance at Autotrader, said: ‘We support this pragmatic and proportionate approach from the FCA that strikes the right balance between ensuring robust protection and transparency for consumers, while underpinning the stability of an automotive sector that contributes billions to the UK economy every year.’
