Millions of Drivers Could Receive Payouts from £18bn Car Finance Compensation Scheme
Millions of UK motorists may be eligible for compensation under a redress scheme announced by the Financial Conduct Authority (FCA), following widespread mis-selling of car finance agreements involving discretionary commissions.
The FCA will launch a consultation by October to determine how the scheme will operate, with payments expected to begin in 2026. The scheme could cost lenders between £9 billion and £18 billion, with most individual payouts likely to be under £950.
The announcement comes after the Supreme Court overturned a major ruling that could have exposed finance providers to up to £44 billion in claims — nearly as extensive as the PPI scandal. While the court sided largely with the lenders, it upheld a single case deemed “unfair” due to the size and disclosure of the commission.
Discretionary commission arrangements, banned in 2021, allowed car dealers to increase their earnings by placing customers into higher-interest loans. The FCA estimates that around 14.6 million finance agreements between 2007 and 2020 included such terms. The new scheme may also extend to cover unfair practices up to 2024, broadening the pool of affected borrowers.
FCA Chief Executive Nikhil Rathi said:
“It’s clear some firms have broken the law. It’s fair for their customers to be compensated. Our aim is a scheme that’s simple and fair, without the need for claims management companies or lawyers, who would take a portion of any payout.”
The regulator stressed that although full implementation will take time, it intends to begin issuing compensation from next year.
The case that triggered this move was brought by Close Brothers and South Africa’s FirstRand, who challenged a Court of Appeal ruling suggesting most commission-based car loans were unlawful unless clearly disclosed.
Before the Supreme Court’s judgment, Chancellor Rachel Reeves was reportedly so concerned about its financial implications that she considered legislative intervention.
