Millions of UK drivers could be in line for compensation next year after the Financial Conduct Authority (FCA) confirmed it is designing a redress scheme covering mis-sold car finance.
The regulator has estimated that up to 14 million agreements since 2007 could be eligible, with average payouts running into the hundreds of pounds.
The move follows a series of legal rulings, including a recent Supreme Court case, which found that some motor finance deals included poorly disclosed commissions. These arrangements often incentivised dealerships to secure higher interest rates, leaving customers unfairly out of pocket.
Nikhil Rathi, chief executive of the FCA, told MPs on the Treasury Select Committee that proposals for the compensation scheme would be published in October, with the intention of resolving “the critical mass” of claims in 2026. He added that while many claims would be straightforward, others would require careful judgment due to their fact-specific nature.
The scheme is expected to cover loans taken out between 2007 and 2021, when discretionary commission arrangements were banned. FCA chair Ashley Alder said the inclusion of agreements as far back as 2007 reflected concerns about “deliberate concealment” of key terms and charges.
However, the regulator acknowledged challenges ahead. Some lenders have pushed back on the scope of the scheme, arguing that customer records from older loans may be hard to retrieve. The FCA countered that many firms retain data for longer than required, and additional information can be obtained from credit reference agencies.
Rathi also confirmed that cooperation from lenders has been mixed, with nearly 40 firms currently in discussions. MPs pressed him to name those proving uncooperative, but he declined to do so publicly. Instead, he indicated he would be willing to disclose the names privately to the committee.
While the compensation scheme is still being finalised, the FCA has committed to running a national awareness campaign to ensure motorists know how to claim. The regulator stressed that the scheme will be designed to be “pragmatic, proportionate and fair to all sides,” avoiding a repeat of the near decade-long turmoil of the payment protection insurance scandal, which ultimately cost the industry almost £50billion.