Millions of drivers could receive a share of a multibillion-pound compensation package after the Financial Conduct Authority (FCA) announced plans for a redress scheme over the car finance scandal. The scheme, which could cost banks between £9bn and £18bn, is expected to start paying consumers in 2026. However, the FCA warned that most payouts are likely to be under £950 per claim.
The FCA will consult on the scheme by October, focusing on motorists harmed by discretionary commission arrangements, which were banned in 2021. These arrangements allowed car dealers to earn higher commissions by placing customers on loans with higher interest rates. About 14.6 million contracts included such arrangements between 2007 and 2020. The watchdog may also extend the scheme to cover broader unfair commission practices up to 2024.
The move follows a Supreme Court ruling that largely overturned a previous Court of Appeal decision, which had suggested nearly all undisclosed commission arrangements were unlawful. The Supreme Court sided with finance companies but upheld one case deemed unfair due to the size and disclosure of the commission. The earlier ruling could have led to compensation of up to £44bn, rivalling the PPI scandal.
FCA Chief Executive Nikhil Rathi said: 'It is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated.' He urged consumers not to use claims management companies, as they would take a significant cut of any payout. The FCA aims to make the scheme easy to participate in directly.
Liberal Democrat MP Bobby Dean called it 'the biggest consumer finance scandal since PPI', adding that the compensation bill is likely to exceed £10bn. The FCA emphasised that the final scheme must balance consumer harm with potential impacts on lenders and the wider market.
