Millions of British motorists who purchased cars through finance deals could be entitled to compensation of up to £950 each, as the Financial Conduct Authority (FCA) prepares to launch one of the largest redress schemes in UK history.
The proposed scheme, confirmed by the FCA on Sunday, aims to address concerns over widespread mis-selling linked to discretionary commission arrangements (DCAs) between car dealers and finance providers. These now-banned practices allowed dealerships to increase interest rates on loans in exchange for higher commissions — often without the buyer’s knowledge.
The regulator estimates the cost to motor finance firms could range from £9 billion to £18 billion. Although this is lower than previous estimates of £30 billion, it still places the scheme among the most significant financial redress efforts in the country, second only to the £50 billion paid out in the Payment Protection Insurance (PPI) scandal.
“It’s clear that some firms have broken the law and our rules,” said Nikhil Rathi, Chief Executive of the FCA. “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.”
The FCA plans to begin a formal consultation by October, with final plans expected in early 2026. If approved, payouts could begin later that year. The average compensation is expected to be under £950 per person, depending on individual loan terms and the nature of the commissions involved.
Motorists most likely to be affected are those who financed vehicles between 2007 and January 2021 and were not properly informed about commissions or how interest rates were determined. Major lenders potentially impacted include Lloyds Banking Group’s Black Horse division, Barclays, Santander UK, and Close Brothers.
The redress scheme follows legal action brought by consumers against lenders such as MotoNovo and Close Brothers. Although a recent Supreme Court ruling reduced lenders’ financial exposure by overturning parts of a key judgment, the FCA maintains that compensation is still warranted in cases where misconduct occurred.
Consumers are urged to file complaints directly with their lender if they believe they were affected. The FCA has stressed that there is no need to hire a solicitor or claims management company (CMC), which may charge up to 30% in fees.
“Our aim is a compensation scheme that’s fair and easy to participate in,” said Rathi. “If you use a claims management company, it will cost you a significant chunk of any money you get.”
More details on the consultation process and how to claim will be made available on the FCA’s website in the coming months.
