Millions of drivers could be entitled to compensation from a multibillion-pound redress scheme for car finance mis-selling, the Financial Conduct Authority (FCA) has announced. The scheme, which could cost banks between £9bn and £18bn, is expected to start paying out in 2026, with most claims likely to be under £950.
The FCA will consult on the redress scheme by October, following a Supreme Court ruling that largely overturned a previous decision that could have led to payouts of up to £44bn. The scheme will cover motorists harmed by discretionary commission arrangements (DCAs), which were banned in 2021. These arrangements allowed car dealers to earn higher commissions by placing customers on loans with higher interest rates, inflating the cost of finance.
About 14.6 million car finance contracts between 2007 and 2020 included DCAs. The FCA also plans to consult on broader motor financing issues, potentially covering agreements from 2007 to 2024, which would encompass a larger group of borrowers. The regulator emphasised that most compensation payments would be less than £950 per claim, and urged consumers not to use claims management companies, which would take a significant cut.
Liberal Democrat MP Bobby Dean, a member of the Treasury committee, called it “the biggest consumer finance scandal since PPI”. He said: “Millions will be owed. The compensation bill is likely to surge above £10bn.” The FCA’s chief executive, Nikhil Rathi, stated: “It is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated.”
The Supreme Court case was brought by lenders Close Brothers and FirstRand, challenging a Court of Appeal ruling that had deemed nearly all undisclosed commission arrangements unlawful. If upheld, that ruling could have cost lenders up to £44bn, rivalling the PPI scandal. The FCA said the final scheme would balance consumer harm with the risk of lenders reducing credit availability or increasing costs.
