Millions of motorists who were overcharged on their vehicle loans could soon receive an average payout of £829, according to newly unveiled plans by the UK's financial watchdog.
The Financial Conduct Authority (FCA) has outlined a massive compensation scheme expected to cost lenders a staggering £9.1 billion. While the scope has narrowed slightly from initial estimates, approximately 12.1 million car finance agreements will still qualify for the payout.
Of the total £9.1 billion bill, lenders are projected to pay out £7.5 billion directly to wronged customers. The remaining £1.6 billion will cover the administrative costs of running the vast redress program.
At the heart of this multi-billion-pound scandal are vehicle loans issued between April 2007 and November 2024. Many of these contracts featured "discretionary commission arrangements" (DCAs)—a controversial practice where car dealers were rewarded by lenders with higher fees if they pushed buyers into taking loans with steeper interest rates. Unbeknownst to consumers, they were essentially penalized with inflated monthly payments just to boost the dealer's commission. The FCA officially banned this practice in 2021.
"We expect everyone to get behind the scheme, and lenders to put things right promptly for their customers," the FCA stated, adding, "We need to draw a line under the past and support a healthy motor finance market for the future."
Beyond the banned DCAs, motorists may also be eligible for compensation if they were kept in the dark about other questionable lender-dealer agreements. These include "high commission" setups—where the dealer pocketed at least 10% of the total loan amount and 39% of the total cost of credit—or exclusive contractual ties that gave a specific lender the right of first refusal, restricting the buyer's financial options.
The FCA's centralized scheme is designed to make the claims process straightforward, allowing affected drivers to seek compensation without needing to hire a lawyer or drag lenders through the courts. Though some consumers may still choose to pursue private legal action, major lenders have already begun stockpiling tens of millions of pounds to cover the impending wave of regulatory payouts.