Millions of UK drivers who were mis-sold motor finance agreements could receive compensation this year, with average payouts estimated at £829 per person.
The Financial Conduct Authority (FCA) has outlined a proposed redress scheme expected to cost lenders £9.1 billion in total. Around 12.1 million agreements are likely to qualify under the revised criteria, down from earlier estimates of 14.2m.
Most new cars, along with many used vehicles, are purchased using finance agreements. Of the total cost, the FCA expects £7.5bn to be paid directly to affected customers, with a further £1.6bn covering administrative costs.
The scheme centres on concerns around discretionary commission arrangements (DCAs). These allowed car dealers to earn higher commissions by increasing the interest rates they charged customers, often without clear disclosure. The FCA banned these practices in 2021, citing the risk of consumers paying more than necessary.
Compensation may also apply where customers were not informed about other commission structures, including high-commission deals in which dealers received a significant share of the total credit cost, and exclusive agreements between lenders and dealers that limited consumer choice.
The FCA intends for the scheme to provide a straightforward route for consumers to claim compensation without needing legal support. However, some lenders and industry bodies, including the Finance and Leasing Association, have raised concerns about the scope of the proposals.
The scheme remains subject to potential legal challenge before full implementation.
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