Millions of UK drivers could soon see compensation for unfair car finance deals, as the Financial Conduct Authority (FCA) moves forward with a sweeping redress scheme set to launch its consultation by early October 2025. The FCA’s chief executive, Nikhil Rathi, told MPs on the Treasury Committee that payouts to affected drivers are expected to start during 2026, potentially closing the chapter on a saga that has left many consumers out of pocket for years. But while the numbers are eye-catching—up to 30 million car finance agreements were made between 2007 and 2020—not every deal will qualify for compensation.
“During the period that we’re looking at – from 2007 through to approximately 2020 – there are around 30 million agreements,” Rathi stated, according to BBC and other UK news outlets. He was quick to clarify, however, that “not all of those will be eligible for compensation.” The FCA is still determining the boundaries of this scheme, with Rathi adding, “One of the things that we are looking at very closely is what the scope of the scheme will be.”
At the heart of the issue are so-called discretionary commission arrangements (DCAs), a practice that allowed car dealers and other brokers to hike up the interest rates on car loans to boost their own commissions. According to the FCA, there were about 14.6 million such arrangements during the period in question. “A very significant proportion of those agreements… we do think probably breached the law when it came to disclosure and, by extension, unfair relationships,” Rathi told MPs, as reported by NationalWorld. The FCA’s investigation found “evidence that there have been unfair relationships between lenders and their consumers and commissions paid that were not adequately disclosed.”
For many drivers, the mechanics of car finance deals—often the only route to affording a new or even used vehicle—were far from transparent. As Sky News explained, most customers did not pay for cars in cash, instead relying on loans that were supposed to come with clear terms. But many were not informed about the commission structures that incentivized dealers to push up interest rates. “A large number of consumers were not properly informed and perhaps did not get the fairest interest rate that they should have done,” Rathi acknowledged.
The FCA’s consultation on the redress scheme is expected to begin by early October 2025. Rathi expressed hope that “compensation, where it is due, can start to be paid next year.” The regulator is keen to resolve the matter swiftly, with Rathi emphasizing, “The practices that we’re dealing with in this scheme are practices of the past, and we do want to put this behind us as soon as possible.”
But what about the size of the potential payouts? While some claims management companies (CMCs) and law firms have circulated advertisements suggesting individual compensation could exceed £4,500, the FCA has poured cold water on those figures. “Some of the CMCs and law firms are putting out high-pressured advertising suggesting to consumers they may get more than £4,500, and numbers like that,” Rathi said, as reported by BBC and Newshub. Since 2024, the FCA has intervened in around 400 such promotions, demanding their removal or amendment. Of those, 171 interventions have taken place since the Supreme Court’s August 2025 judgment on the issue.
“We don’t agree with some of those very large estimates… we do think the average is likely to be hundreds, not thousands, of redress,” Rathi stressed. The FCA previously estimated that most individuals would probably receive less than £950 in compensation. The overall cost of the compensation scheme, however, is nothing to sneeze at—estimates range between £9 billion and £18 billion, according to the FCA. At least 38 motor finance firms are expected to be involved in running the scheme, reflecting the scale and complexity of the operation.
The FCA’s industry-wide action follows a landmark Supreme Court ruling in August 2025, which determined that lenders were not liable for hidden commission payments on car finance agreements. However, the FCA was quick to clarify its stance in a statement, declaring, “It is clear that some firms have broken the law and our rules, and it is fair for their customers to be compensated.” The regulator’s approach underscores its commitment to consumer protection, even where the legal landscape remains complex.
For consumers, the FCA has a clear message: you don’t need to hire a lawyer or a claims management company to make a complaint. The regulator is concerned about fraudsters and opportunistic firms looking to exploit the situation. “We advise consumers they do not need lawyers or claims management companies to make complaints and warn about fraudsters exploiting the situation,” Rathi said. The FCA has made it a priority to ensure that the process will be as accessible and straightforward as possible, aiming to prevent further harm to those already affected by unfair practices.
The FCA’s consultation will determine the final scope of the scheme, and not every one of the 30 million agreements will result in a payout. The focus is on deals where consumers were not properly informed about commission arrangements—particularly those involving DCAs, where the incentive for brokers to increase interest rates was not made clear. The regulator believes that a “very significant proportion” of these agreements likely breached the law on disclosure and created unfair relationships between lenders and borrowers.
Looking ahead, the FCA is determined to draw a line under these historic practices. “The practices that we’re dealing with in this scheme are practices of the past, and we do want to put this behind us as soon as possible,” Rathi told MPs. The hope is that, by 2026, eligible consumers will finally receive the compensation they deserve, while the motor finance industry is compelled to operate with greater transparency and fairness moving forward.
As the FCA prepares to launch its consultation and set the wheels in motion for compensation, millions of drivers will be watching closely. For those who have long suspected they were misled or overcharged, this could be the long-awaited opportunity to secure redress—and maybe, just maybe, to restore some faith in the system.
