The Financial Conduct Authority (FCA) has announced plans for a redress scheme to compensate millions of motorists affected by the car finance mis-selling scandal. The scheme, which could cost banks between £9bn and £18bn, is expected to begin payments in 2026, with most individual payouts likely to be under £950.
The FCA will consult on the scheme by October, focusing on discretionary commission arrangements (DCAs) that were banned in 2021. These arrangements allowed car dealers to earn higher commissions by placing customers on loans with higher interest rates. Around 14.6 million contracts between 2007 and 2020 included such arrangements.
The move follows a Supreme Court ruling that largely overturned a previous Court of Appeal decision which had threatened compensation costs of up to £44bn. The FCA said the final scheme would balance consumer harm with the need to maintain a functioning motor finance market.
FCA Chief Executive Nikhil Rathi urged consumers not to use claims management companies, stating: “Our aim is a compensation scheme that’s fair and easy to participate in, so there’s no need to use a claims management company or law firm. If you do, it will cost you a significant chunk of any money you get.”
Liberal Democrat MP Bobby Dean described the scandal as “the biggest consumer finance scandal since PPI”, adding: “Millions will be owed. The compensation bill is likely to surge above £10bn.”
