The Financial Conduct Authority has confirmed millions of motorists will receive compensation for mis-sold car finance deals, with the average payout exceeding initial estimates despite fewer agreements qualifying for redress than originally anticipated.
Approximately 12.1 million motor finance arrangements will be eligible for compensation under the finalised scheme, with payments commencing this year, the watchdog announced on Sunday. The figure represents a reduction from the 14 million agreements initially expected to qualify.
The FCA disclosed that individual payouts will average £829 per agreement—surpassing its preliminary estimate of approximately £700—with firms expected to distribute around £7.5 billion in total redress, down from the £8.2 billion projected during consultation.
The overall cost to lenders has fallen from £11 billion to £9.1 billion following adjustments to the scheme’s parameters.
Motor finance agreements executed between 6 April 2007 and 1 November 2024 where lenders paid commission to brokers will be assessed for compensation eligibility. The regulator will implement two distinct schemes covering different timeframes: one addressing deals from 6 April 2007 through 31 March 2014, and another encompassing agreements from 1 April 2014 to 1 November 2024.
The scandal centres on widespread failures by car finance providers to properly inform customers about commission arrangements between lenders and dealerships, which saw brokers increase interest rates on loans without disclosure whilst pocketing higher commissions.
This practice, known as discretionary commission arrangements, was prohibited in 2021 after regulators determined it breached consumer protection standards. However, the Supreme Court delivered a landmark ruling on 1 August 2025 establishing that failing to properly disclose such arrangements could constitute unfair and unlawful conduct in certain circumstances.
Thousands of motorists were placed on elevated interest rates without their knowledge when purchasing vehicles on finance, with dealers and brokers benefiting financially from the undisclosed markups.
The FCA received over 1,000 responses following consultation on its draft proposals last year, prompting several modifications to the final scheme before Sunday’s announcement.
Individual compensation amounts will vary depending on specific circumstances of each agreement, with some recipients likely to receive substantially more or less than the £829 average depending on factors including the size of their loan and the commission arrangements involved.
The regulator’s decision follows years of investigation into motor finance practices and represents one of the largest consumer redress schemes in recent British financial services history.
