Millions of drivers who were mis-sold car finance agreements will have to wait until at least 2027 to receive compensation, after the Financial Conduct Authority (FCA) confirmed that legal challenges have delayed the scheme. The FCA expects average payouts of £829 per mis-sold agreement, with the total cost of compensation – including administrative expenses – potentially reaching £9.1bn.
The scheme covers about 12 million car loans taken out between April 2007 and November 2024 – just over 40% of all finance agreements during that period. The vast majority of new and many second-hand cars are bought using finance, where customers pay an initial deposit followed by monthly interest payments.
“Millions face wait until 2027 for car finance compensation after legal delays, with average £829 payouts expected.”
The compensation drive stems from the FCA's 2021 ban on discretionary commission arrangements (DCAs), deals in which car dealers received commission from lenders based on the interest rate charged to customers – often without the buyer's knowledge. The FCA said this created an incentive for dealers to charge higher rates, leaving customers paying too much. In other cases, contracts were deemed unfair because the commission paid to the dealer accounted for at least 35% of the total cost of credit or 10% of the loan. Some customers were also not given accurate information about the best finance deal due to exclusive arrangements between dealers and lenders.
Under the FCA's central compensation scheme, people can complain and potentially receive compensation without needing a lawyer or going to court. The regulator urged anyone who has not yet complained to contact their car loan provider directly, rather than using a third-party claims management company. Complaints have already been made about four million finance agreements; those people do not need to do anything further.
However, the timing of payments remains uncertain. Lenders will respond to claims, explaining if compensation is owed and how much, but letters are now delayed because of the legal challenge. The FCA expects that those who complain before the scheme is fully operational are likely to receive compensation faster. Individual payouts will depend on the degree of harm suffered, and for some customers – particularly if their contact details have changed – it could take many months before compensation is paid.
Motorists have also been warned to be on the alert for scammers posing as car finance lenders offering fake compensation. The FCA has published guidance on how to complain and avoid fraud.