Victims of the UK’s car finance scandal are set to receive average compensation payouts of approximately £700, according to the Financial Conduct Authority (FCA). This announcement stems from the identification of 14 million unfair loans. The total compensation bill for lenders may reach between £8.2 billion and £9.7 billion, though this figure represents a lower payout than earlier estimates.
The proposed compensation scheme will address motor finance agreements made between April 2007 and November 2024, with payouts expected to commence early next year. This situation may represent one of the largest mass financial payouts since the payment protection insurance (PPI) mis-selling cases, in which around 34 million consumers received an average of £1,000.
The FCA’s consultation highlights allegations of large-scale mis-selling and the payment of undisclosed commissions to car dealers, causing customers to pay more for their loans than necessary. The regulator estimates that around 44% of agreements made during this period may be declared unfair.
The financial impact on lenders, projected to be around £8.2 billion in compensation, could increase to £11 billion when factoring in additional operational costs. While the FCA acknowledges the complexities of this issue, it aims to implement a straightforward compensation scheme.
Current projections indicate that individual compensation may vary, with most people likely to receive less than £950. The FCA also notes that not all participants will receive uniform payouts.
Notably, this scheme operates despite a recent Supreme Court ruling that substantially reduced potential payouts. The FCA’s investigation specifically targets discretionary commission arrangements, which were banned in 2021 due to concerns about incentivizing overcharging by dealerships.
The scheme will include proactive outreach to consumers who have filed complaints, while those not previously in contact with their lenders will have a year to claim once the scheme goes live. Interest will be calculated based on the Bank of England’s base rate plus 1% from the date of overpayment until compensation is issued. The FCA plans to conduct an advertising campaign to inform consumers about the available compensation.
Source: https://www.theguardian.com/business/2025/oct/07/uk-car-loan-scandal-victims-in-line-for-payout-fca