5:13 pm, October 7, 2025
Some 14m car buyers will get compensation payouts of around £700 each if a proposed FCA scheme goes ahead.
The City regulator expects the scheme will cost lenders £8.2bn with pay-outs starting as early as next year.
The FCA said the majority of motor finance agreements ‘will not qualify’ for compensation.
However, it estimates that 14.2m agreements, some 44% of those made since 2007, will be considered unfair and the consumers who took them out due payouts.
Anyone who took out finance between April 6, 2007 and November 1, 2024 could be due compensation if their deals meet one of three tests, said the FCA in its announcement this evening (Tuesday, Oct 7).
Compensation is due if consumers weren’t told details of at least three arrangements between the lender and the car dealer, including:
– A discretionary commission arrangement, which allowed the dealer to adjust the interest rate the customer would pay to obtain a higher commission.
– A high commission arrangement (35% of the total cost of credit and 10% of the loan).
– A contractual arrangement or tie between the lender and car dealer, which provided exclusive or near exclusive rights to lenders to provide credit.
Those people who complained to their lender are likely to get their pay-outs faster as the scheme gets up and running.
Those customers who had not complained will be contacted by their lender within six months of the scheme starting.
The FCA says a compensation scheme is the ‘best, most efficient way of getting compensation to those owed it’ and thinks it would make things simpler for those who might struggle to make a claim.
The FCA added: ‘People will be asked if they want to opt-in to the scheme to have their case reviewed. They’ll have 6 months to decide.’
In preparation for the scheme, the FCA commissioned research which found consumers who had not yet claimed wanted to see more clarity about a compensation package before they did.
The scheme will be free to access for consumers and the most ‘cost effective’ for firms involved, said the regulator.
The FCA said without the scheme many cases would go through the courts and would result in ‘higher legal and administrative costs for firms and consumers’.
Consumers do not need to use a claims management firm, said the FCA, and can do so by downloading a letter template from its website.
The FCA said those who chose to use a claims management firm ‘could lose a significant amount of any compensation owed’.
The City watchdog added: ‘Those motor finance borrowers who don’t receive a letter – for example, because lenders no longer have their details and can’t trace them – will have a year from the scheme starting to make a claim.
‘They will be able to do so by making a claim to their lender directly. If consumers don’t know who their lender was, there’s information on how to check on the FCA website. The FCA will run an advertising campaign to raise awareness of the scheme.’
Nikhil Rathi, chief executive of the FCA, added: ‘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.’
