However, the final plans confirmed on Monday suggest less money will be handed out in total that originally estimated. On top of that, fewer people are likely to be eligible for payouts compared with its initial estimates.
What was the car finance scandal?
The FCA launched an investigation into car finance loans in 2024 and UK courts subsequently found that car finance firms broke the law by failing to disclose important information to customers, largely between April 2007 and November 2024.
It is believed many customers were denied the chance to seek a better deal and in some instances, paid more for their loan during the time period above.
How many people qualify for payment?
Compensation payouts are due on around 12.1 million unfair motor finance deals, at an average of £830 per agreement.
But the final redress scheme will mean around two million fewer deals are eligible for compensation.
The regulator is expecting the total amount of redress paid under its scheme to be about £7.5 billion, lower than the previous £8.2 billion estimate, and based on about 75% of eligible consumers making a claim.
Who can get a car finance compensation payment?
People who undertook a car finance agreement between April 6, 2007 and November 1, 2024 may qualify for a compensation payment.
Car finance deals involving minimal commission – £120 or less for agreements before April 1 2014, and £150 or less for after that date – are considered to be fair and therefore not eligible for compensation.
People will only be compensated if they were not told clearly that their dealer/broker set the interest rate to earn more commission; commission was at least 39% of the total cost of credit and 10% of the loan; only one lender was used or one lender was given right to refusal.
There will be some exceptions.
Anyone who has already been contacted does not need to do anything. However, if you believe you may qualify for a payment, it is recommend that you contact your car loan provider directly.
The FCA has published in depth guidance on how to complain on its website.
The FCA thinks millions of claims will be paid out this year, and the vast majority settled by the end of 2027.
There will be a short implementation period so firms can prepare for these payments, after which they will have three months to inform complainants whether they’re owed compensation and if so, how much. Anyone not contacted has until August 31, 2027 to make a claim.
People who complain before the scheme gets up and running are likely to receive compensation sooner.
FCA chief executive Nikhil Rathi said: “We’ve listened to feedback to make sure the scheme is fair for consumers and proportionate for firms. It will put £7.5 billion back into people’s pockets.
“Now we need everyone to get behind it and ensure millions get their money this year.
“Payouts should not be delayed any longer, especially as household bills come under greater pressure.”