The FCA said it expects to compensate about 12 million car loans, representing just over 40% of all loans issued between April 2007 and November 2024. Average payouts are expected to be around £829 per mis-sold agreement, with total costs including administration potentially reaching £9.1bn. However, legal challenges scheduled to be heard in February 2027 have pushed back compensation calculations and payments.
The compensation scheme addresses car finance deals where dealers received commissions from lenders based on interest rates charged to customers - arrangements known as discretionary commission arrangements. The FCA banned these in 2021, saying they incentivised dealers to charge higher-than-necessary rates. Some customers also signed unfair contracts where commissions accounted for at least 35% of credit costs and 10% of the loan, or were misled by exclusive arrangements between dealers and lenders.
About four million complaints have already been made and those customers need take no further action. The FCA urges others to contact their car loan provider directly rather than using claims management companies. The regulator warned that lenders, banks and specialist motor finance firms have already set aside billions of pounds for potential payouts, with the industry expected to cover all costs.
The Upper Tribunal will hear challenges from lenders including Volkswagen Financial Services, Mercedes Benz Financial Services and Credit Agricole Auto Finance. The FCA said that without the scheme, up to 19 million complaints would need individual handling, taking three years and costing lenders £6bn more.