Motorists might soon be eligible for compensation following a major scandal involving the mis-selling of car finance deals, which has had a significant impact on the lending industry. Millions of individuals who purchased a vehicle since 2007 may have been affected by unfair car loan agreements that allowed dealers to receive hidden commissions.
The UK’s financial regulator, the Financial Conduct Authority (FCA), has introduced a redress scheme for drivers who were impacted by these practices. The scale of the issue was revealed after three drivers took their cases to court, although only one case was successful in the Supreme Court, raising concerns about how many people could receive compensation.
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Here is a breakdown of who could get money and what you need to do if you are eligible.
Who is eligible for the compensation?
If you bought a car, motorbike, or van on finance between April 6, 2007, and November 1, 2024, and the lender included a high commission or a contractual tie that wasn’t properly disclosed, you might qualify for compensation.
Approximately 14 million deals will be considered unfair and eligible for compensation under the FCA scheme, though the watchdog initially reviewed around 32 million finance deals. These were known as discretionary commission arrangements (DCAs), which allowed brokers, such as car dealers, to increase interest rates on car loans to boost their commission without informing the customer.
Around four million claims have already been submitted, leaving approximately 10 million yet to be processed.
There have been reports of scammers contacting people and pretending to be from the lender or the FCA, offering fake compensation. If someone calls you offering compensation, you should hang up immediately.
How can you make a claim?
If you believe you were given an unfair car deal, the first step is to submit a complaint to the lender you used. The FCA provides a template that people can download here.
If you are unsure who provided the deal, the information might be found in old bank statements, or you can contact the dealer where you purchased the car to ask. The provider should send you an acknowledgment within eight weeks of receiving the complaint. Lenders are not required to provide a final response until after December 4, 2025.
Making a claim is free, and you do not need to use a claims management company or a law firm to receive compensation.
How much compensation could drivers get?
Affected motorists are estimated to receive an average of £700 per car finance agreement, though the amount may vary depending on the severity of the case. However, the FCA’s early estimates suggested that the average could be less than £950.
For the lending industry, the total cost could reach £8.2 billion. Nikhil Rathi, the chief executive of the FCA, stated: “Many motor finance lenders did not comply with the law or the rules. Now we have legal clarity, it’s time their customers get fair compensation. Our scheme aims to be simple for people to use and lenders to implement.”
“We recognize that there will be a wide range of views on the scheme, its scope, timeframe, and how compensation is calculated. On such a complex issue, not everyone will get everything they would like. But we want to work together on the best possible scheme and draw a line under this issue quickly. That certainty is vital, so a trusted motor finance market can continue to serve millions of families every year.”
However, representatives from the lending industry, including the Finance and Leasing Association, have criticized the FCA, claiming that the compensation amounts are too high and that the number of affected individuals seems implausibly high.
Get in touch with our news team by emailing us at [email protected].
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