Millions of motorists are expected to learn how to seek compensation for mis-sold car finance agreements when the financial regulator announces the final framework for payouts later today.
The Financial Conduct Authority (FCA) is set to release its decision this afternoon, outlining how a compensation scheme will operate for roughly 14 million motor finance contracts.
The protracted, multi-billion pound issue — which has reached the UK’s highest court — is anticipated to yield average payouts of around £700 for agreements signed between April 2007 and November 2024.
However, the proposed scheme could still face legal opposition from lenders and claims management firms, potentially prolonging the process for affected drivers.
The compensation centers on commission structures between lenders and dealerships, as well as unfair contract terms and misleading information provided to buyers.
Regulators have been developing a centralized redress program designed to avoid court proceedings for most claims, though some motorists may still choose litigation in pursuit of larger settlements.
Earlier estimates from the FCA indicated that 44% of motor finance agreements made during the period could qualify for compensation, with payouts exceeding £8bn. Lenders are also expected to incur an additional £3bn in administrative expenses.
A Supreme Court ruling in August narrowed the scope of eligible cases, preventing potential liabilities from escalating into tens of billions of pounds.
Most new vehicles — and a significant share of used cars — are purchased through financing arrangements.
In 2021, the FCA prohibited commission-based deals in which car dealers earned more depending on the interest rate charged to customers. These arrangements, known as discretionary commission arrangements (DCAs), were often not disclosed.
The regulator said such practices created incentives to increase borrowing costs for consumers, resulting in higher payments than necessary.
Based on court findings, the FCA has also identified other types of unfair agreements, including:
High commission arrangements – where the commission was equal to or greater than 35% of the total cost of credit and 10% of the loan
Tied arrangements that gave a lender exclusivity or a first right of refusal, without drivers being clearly informed
Industry representatives have criticized the regulator’s approach as overly broad, warning that compensation may extend beyond genuinely affected customers.
Drivers Await Compensation Plan as Regulator Prepares Final Ruling
