Car finance compensation: millions could get £700 payouts

Eligible motorists who bought cars on finance between 2007 and 2024 could receive a share of up to £9.7 billion.

Millions of car buyers could receive payouts worth £700 on average following a huge announcement by the financial watchdog.

The Financial Conduct Authority (FCA) is consulting on a redress scheme worth between £6.8 billion and £9.7 billion for motorists who were mis-sold car finance.

According to the FCA, the scheme will cover regulated motor finance agreements taken out between 6 April 2007 and 1 November 2024 where commission was payable by the lender to the broker.

While compensation would obviously be good news for affected motorists, it’s worth noting that the amount they might receive could be smaller than previously thought.

Last August, the FCA estimated the average payout would be worth £950, but this has now been revised down to £700.

What you need to know

The car finance scandal has been rumbling on for years.

You can get a detailed breakdown of what’s happened in this 2024 explainer, but the key developments you need to be aware of are as follows.

Who might receive compensation?

Car finance firms broke regulations in force since 2007 by failing to disclose important information, which led to many car buyers paying more for their loans.

This does not mean anyone who took out car finance would be eligible.

Instead, it will be largely those who took out Discretionary Commission Arrangements (DCAs), in which the dealer received a commission from the lender, based on the interest rate charged to the customer.

As the FCA explains: “The majority of motor finance agreements will not qualify for compensation.

“We estimate 14.2 million agreements – 44% of all agreements made since 2007 – will be considered unfair because they involve inadequate disclosure of one or more of the following:  

• A discretionary commission arrangement;

• High commission (where the commission is equal to or greater than 35% of the total cost of credit and 10% of the loan);

• Contractual ties that gave a lender exclusivity or a right of first refusal."

What will happen next?

Once the compensation scheme is up and running, eligible motorists who have already filed complaints about their loan arrangement will likely be compensated first.

If they do not hear back after one month of launch, lenders will assume they should look at the case and pay compensation if appropriate

Motorists who have not complained should be contacted by their lender within six months of the scheme’s launch and asked if they want to “opt in” and have their case reviewed.

Those who do not receive a letter because lenders cannot trace them will have a year from the launch date to make a claim.

Consumers who have already been compensated for complaints covered by the scheme would be excluded.