The Financial Conduct Authority (FCA) has unveiled long-awaited plans for a compensation scheme for motorists who bought cars through discretionary commission arrangements (DCAs) between 2007 and 2024, following one of the UK’s largest mis-selling scandals.
The regulator said affected car buyers are expected to receive an average payout of around £700 each, covering an estimated 14 million unfair loans. While lower than initial projections, the scheme could still cost lenders up to £8.2 billion in compensation, with total costs — including administration — potentially rising to £11 billion.
The FCA said this would likely be the biggest mass payout since the PPI scandal, which saw 34 million consumers compensated an average of £1,000 each.
The proposed scheme covers millions of car finance agreements arranged between April 2007 and November 2024 and is designed to compensate customers who unknowingly paid inflated interest rates because of “secret” commissions paid to car dealers. Payouts could begin as early as next year, pending the outcome of the FCA’s consultation.
Under the now-banned DCA model, car dealers were allowed to set loan interest rates, earning higher commissions for charging customers more — a practice the FCA says incentivised widespread overcharging.
FCA chief executive Nikhil Rathi said:
“Many motor finance lenders did not comply with the law or the rules — it’s time their customers get fair compensation. Our scheme aims to be simple for people to use and lenders to implement.”
Despite a Supreme Court ruling in August that overturned a previous judgment which could have resulted in payouts of up to £44 billion, the FCA pressed ahead with its own investigation into DCA mis-selling.
The regulator acknowledged that “not everyone will get everything they would like” but said it was focused on delivering “the best possible scheme and drawing a line under this issue quickly.”
More than 2 million people take out motor finance each year, borrowing a total of £39 billion in 2024 — with most new cars and many used vehicles now bought through personal contract purchase (PCP) or hire purchase (HP) agreements.
The FCA expects a wide range of payouts under the new scheme, with some motorists receiving more than £700 and others less, depending on their specific loan terms and circumstances.
