7:00 am, August 4, 2025
Millions of motorists who were mis-sold car finance could receive payments of up to £950 each after the Financial Conduct Authority announced a consultation over a potential redress scheme.
Car Dealer reported on Friday evening that the Supreme Court had ruled that lenders were not liable for hidden commission payments in car finance schemes.
It was expected that the judgement would avoid finance houses having to pay millions in compensation but it seems that they may not be out of the woods just yet.
That is because the FCA has now announced a consultation on an industry-wide compensation scheme.
The regulator says that many motor finance firms were not complying with rules or the law by failing to provide customers with relevant information about commission paid by lenders to the car dealers who sold the loans.
While some motor finance customers will not get compensation because in many cases commission payments were legal, the court ruled that in certain circumstances the failure to properly disclose commission arrangements could be unfair and therefore unlawful, the FCA added.
The FCA estimates that most individuals will probably receive less than £950 in compensation with the total cost of any compensation scheme expected to be between £9bn and £18bn.
The consultation will be launched by early October and the first payments would likely be made in early 2026 if the compensation scheme goes ahead.
Nikhil Rathi, chief executive of the FCA, said:’It is clear that some firms have broken the law and our rules.
‘It’s fair for their customers to be compensated. We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal.
‘Our aim is a compensation scheme that’s fair and easy to participate in, so there’s no need to use a claims management company or law firm. If you do, it will cost you a significant chunk of any money you get.
‘It will take time to establish a scheme but we hope to start getting people any money they are owed next year.’
In an interview with the Sunday Times, Rathi added that any redress scheme would would not be ‘on the scale of PPI’.
He also said that it was ‘more likely than not’ that a redress scheme would take place.
‘We would expect any outcome — if we are to move forward with an industry-wide compensation scheme — to be substantially less than the PPI episode,’ he added.
‘We wanted to make sure that any consumers who had lost out and been treated unfairly are appropriately compensated.
‘But I also recognise that two million people a year depend on this market, and we want to make sure there’s a healthy, competitive, functioning motor finance market in the future.
‘With this clarity from the court, we think we can achieve both.’
How can consumers get compensation?
People who have already complained do not need to do anything, the FCA said.
Consumers who are concerned that they were not told about commission and think they may have paid too much to their motor finance lender should complain now.
Consumers do not need to use a claims management company or law firm and doing so could cost them around 30% of any compensation paid, it added.
In a post on X, consumer champion Martin Lewis wrote ‘there’s no harm in putting a DIY complaint now to see if you had a Discretionary Commission Arrangement.’
NEWS: Up to £18 billion car finance compensation likely to be paid out. Are you one of millions due £100s back (and what you need to do). Full video briefing.
Plus free template letters at https://t.co/nivrD7gRYd pic.twitter.com/9A7Eypxkxd
— Martin Lewis (@MartinSLewis) August 3, 2025
The FCA will propose rules on how lenders should ‘consistently, efficiently and fairly’ decide whether someone is owed compensation and how much, it said. It will monitor if firms are following the rules and act if they are not.
Sam Ward, chief investigator and director at Sentinel Legal, called for the FCA to engage with law firms.
He said: ‘The FCA has taken long enough to pick a side and now is not the time to rush anything.
‘They’ve known about this scandal since 2017. They banned discretionary commissions in 2021. The Court of Appeal ruled. The Supreme Court ruled.
‘And now, finally, the FCA is considering redress. But after years of delay, rushing through a flawed scheme would be a disaster for consumers.
‘For too long, claimant-focused firms like Sentinel Legal have raised the alarm. We’ve provided overwhelming evidence of lender misconduct, of deliberate overcharging, of systemic misselling. And that’s largely fallen on deaf ears.
‘The FCA must now engage with the firms who’ve been in the trenches, firms who’ve taken banks to court and won on behalf of consumers. To issue a consultation without first consulting those who exposed this injustice would be fundamentally unfair.
‘We cannot have a redress scheme that’s self-administered by the same banks who caused the problem in the first place. There must be proper checks and balances. Someone has to hold lenders accountable. That role has, until now, been filled only by law firms and that has to change.
‘So our message to the FCA is simple: don’t rush. Do what’s right. Engage fully with the evidence, with the firms who know the landscape, and with the people who’ve been fighting for justice since the start.
‘That’s how you deliver a redress scheme that is fair, credible and aligned with the reality of what consumers have been through.’
The Supreme Court’s full ruling can be read online in full HERE.
