Millions of Motorists Could Be Eligible for Compensation
Millions of drivers who took out car loans from dealerships may be in line for compensation worth an average of £700. This comes after the Financial Conduct Authority (FCA) found that many consumers were unfairly sold car finance deals without being informed about key details, such as high commission payments.
If you took out a car loan from a dealership when purchasing a vehicle between 6 April 2007 and 1 November 2024, there is a chance you could receive compensation. The FCA estimates that around 44% of cases may qualify for a payout. While the average amount is £700, some individuals may receive less—around £500—while others could get more than £2,000.
The types of agreements covered include most new cars and some second-hand vehicles purchased through personal contract purchase (PCP) or hire purchase (HP) finance deals. These typically involve paying an upfront deposit, borrowing the remaining amount from a lender, and repaying the loan monthly with interest.
Which Agreements Are Considered Unfair?
The FCA has identified 14.2 million motor finance agreements that were deemed unfair. In over 11 million of these cases, the issue was related to ‘discretionary’ commission awarded to salespeople for getting customers to agree to high interest rates.
If you took out one of these so-called Discretionary Commission Agreements (DCAs), you may be eligible for a payout. You may also qualify if your loan involved high commission payments or if there was a tie-up agreement between the lender and broker offering the loan.
How Much Compensation Can I Expect?
Those who took out a discretionary loan deal can typically expect to receive £518, according to the regulator. However, the actual amount may vary depending on the commission negotiated and when the loan was taken out.
The FCA believes that loans where consumers were not told about significant commission payments could result in compensation of up to £960. In cases involving tie-up agreements between lenders and dealers, the payout may be around £527. For a relatively small number of loans—less than 14,000—considered the most serious cases, compensation could be as high as £2,400.
The FCA uses economic analysis and independent statistical advice to determine the average payout of £700. Importantly, you will receive compensation for each eligible car loan. So, for three qualifying loans, you could receive up to £2,100.
The total cost of redress has been estimated at £8.2 billion by the FCA, but when including the cost of running the scheme, it totals £11 billion.
How Is the Compensation Calculated?
The regulator is proposing that lenders who paid discretionary commission will need to return this money, along with interest. It suggests that consumers should be compensated for the average amount they overpaid or lost, plus the commission paid, and interest.
The more commission you paid, the higher the repayment. You also get compensated based on how long ago the deal was made, as that money could have been used elsewhere. The FCA proposes that interest charges should be calculated using the annual average Bank of England base rate plus 1% per year from the date of the overpayment to the date the compensation is paid.
This typically works out to 2.09%. Those who took out other finance deals where high commission amounts were involved or where there was a contractual tie between the lender and dealership may receive additional compensation due to the higher losses incurred.
How to Make a Car Finance Claim
The FCA has created a ‘template complaint letter’ that you can send to your motor finance provider. This document is available on the FCA website. You must provide your name, date of birth, address at the time of the agreement, date of the agreement, vehicle registration plate number, purchase date, and the details of the dealership.
The provider must respond by explaining any commission arrangements. If it was a DCA, or if the commission accounted for at least 35% of the cost of credit, or there was a contractual tie between the lender and broker, you may be eligible for compensation.
When Will People Receive Their Money?
Compensation payments are expected to start from the end of next year. The first payments will be made ‘later in 2026’, and the FCA aims to resolve this issue quickly. Anyone who has already complained before the compensation scheme starts should be contacted by their bank within three months of the scheme launching. Around four million people have already done so.
Lenders will also be required to identify and contact those who are eligible but have not yet filed a claim within six months of the scheme starting. If you haven’t been contacted, you can ask a lender to review your case up to a year into the scheme.
Motorists may choose to opt out and take legal action, which could result in higher or lower compensation. However, the FCA warns against using claims management companies or law firms, as they often take a significant cut of the payout.
Lenders have already set aside billions to cover the costs of claims. Lloyds Banking Group has allocated £1.15 billion, Santander £295 million, and Close Brothers £165 million.
