The Financial Conduct Authority has announced a compensation scheme for approximately 12 million car finance agreements mis-sold between April 2007 and November 2024, representing roughly 37% of all car loans during that period. Affected customers are expected to receive average compensation of approximately £829, with total costs including administrative expenses potentially reaching £9.1 billion. However, the implementation of payouts has been delayed until at least 2027 due to pending legal challenges scheduled to be heard in the Upper Tribunal in February.
The FCA banned discretionary commission arrangements in 2021, which allowed car dealers to receive commission from lenders based on interest rates charged to customers. These arrangements provided incentives for dealers to charge customers higher-than-necessary interest rates, and in many cases customers were not informed about the commissions. The regulator also identified instances where customers signed unfair contracts due to high dealer commissions accounting for significant portions of credit costs, and where exclusive arrangements between dealers and lenders prevented customers from accessing information about better financing options.
Three lenders have mounted legal challenges to the scheme: Volkswagen Financial Services, Mercedes Benz Financial Services, and Credit Agricole Auto Finance. The FCA has stated it will defend the scheme as lawful and necessary to resolve the widespread issue efficiently. The regulator estimates that without a centralized scheme, up to 19 million individual complaints would require handling separately over three years at substantially higher costs to lenders.
Complainants are urged to contact their lenders directly rather than engage third-party claims management companies, which may charge excessive fees. Those who filed complaints by specific deadlines are expected to receive notifications about their eligibility status by designated dates in November 2026 and January 2027. The FCA has warned consumers about scammers posing as lenders offering fraudulent compensation and has cautioned the industry about ensuring consumers do not have multiple representatives or face excessive termination fees. Lenders including Santander, Barclays, and Lloyds have accepted the scheme despite expressing concerns about compensation levels, while other major financial institutions have already provisioned billions for potential payouts.
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