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Millions of UK drivers could receive £950 each in car finance compensation scheme

by August 4, 2025
August 4, 2025
Millions of UK drivers could receive £950 each in car finance compensation scheme

Millions of motorists in the UK who purchased cars on finance deals may be entitled to compensation of up to £950 each, under one of the largest redress schemes in British history.

The Financial Conduct Authority (FCA) confirmed on Sunday that it will launch a formal consultation on a redress programme for car finance mis-selling, following concerns over undisclosed commission arrangements between lenders and car dealerships.

The FCA estimates the scheme could cost motor finance providers between £9 billion and £18 billion — a substantial figure, though lower than the previously feared £30 billion following a Court of Appeal judgment last October.

The scandal centres on discretionary commission arrangements (DCAs), where car dealers had the ability to set interest rates on loans and receive higher commissions for charging customers more. These practices, banned by the FCA in 2021, created conflicts of interest that often left consumers unknowingly overpaying.

Nikhil Rathi, Chief Executive of the FCA, said: “It’s clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated. We also want to ensure that the market, relied on by millions each year, can continue to work well.”

The FCA urged customers who believe they were overcharged to submit complaints now and clarified that there is no need to use a claims management company or solicitor, which could take up to 30% of any redress awarded.

Individuals who have already lodged complaints do not need to take further action at this stage.

The consultation will launch by early October, with final proposals expected in early 2026. If approved, the FCA says redress payments could begin later in 2026.

Under the proposed scheme, the average payout is expected to be under £950 per person, depending on the specific finance deal and the extent of undisclosed commissions involved.

This would still make the scheme one of the largest in UK financial services history, behind only the payment protection insurance (PPI) scandal, which resulted in £50 billion in compensation.

Who is affected?
• Consumers who financed a vehicle between 2007 and January 2021
• Those whose deals involved discretionary commission arrangements
• Customers who were not informed about commissions or interest rate setting

Lenders expected to be most impacted include Lloyds Banking Group, through its Black Horse division, which has already set aside £1.2 billion, along with Barclays, Santander UK, and Close Brothers.

The original legal cases that prompted scrutiny involved ordinary consumers — including a factory worker, postman, and student nurse — and were brought against MotoNovo and Close Brothers.

Although the Supreme Court last week overturned key parts of that earlier judgment, avoiding the most extreme financial exposure for lenders, the FCA has made clear that redress is still required where breaches have occurred.

In a clear message to consumers, the FCA reiterated that claimants do not need to engage claims management companies (CMCs) or law firms to file a complaint or take part in the upcoming scheme.

“Our aim is a compensation scheme that’s fair and easy to participate in,” said Rathi. “If you use a claims management company, it will cost you a significant chunk of any money you get.”

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Millions of UK drivers could receive £950 each in car finance compensation scheme

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