Millions of British motorists who took out car loans over the last two decades are now at the center of one of the country’s biggest financial scandals, as the Financial Conduct Authority (FCA) has unveiled a long-awaited compensation scheme for victims of car finance mis-selling. The move, announced on October 7, 2025, could see lenders pay out between £8.2 billion and £9.7 billion to consumers, with the first payments expected to land as soon as early 2026, according to both BBC and Reuters.
The FCA’s plan, the product of intense legal wrangling and mounting public pressure, covers a staggering 14.2 million motor finance agreements signed between April 2007 and November 2024. This figure represents roughly 44% of all car finance deals made in Britain during that period—a number that has raised eyebrows among industry leaders and consumer advocates alike.
At the heart of the scandal are a series of commission arrangements between lenders and car dealers, some of which left drivers unfairly out of pocket. Discretionary commission arrangements (DCAs), which were banned by the FCA in 2021, allowed dealers to hike up interest rates in exchange for higher commissions from lenders. As a result, many customers unknowingly paid more than they should have for their car loans. But that’s not all: the FCA’s scheme also targets cases involving very high commissions—where the dealer’s cut accounted for at least 35% of the total cost of credit—and exclusive contracts that limited consumers’ ability to shop around for the best deal.
“Many motor finance lenders did not comply with the law or the rules,” FCA Chief Executive Nikhil Rathi said at a press conference, as reported by Reuters. “Now we have legal clarity (after court rulings), it's time their customers get fair compensation.” Rathi also told the BBC, “We recognise that there will be a wide range of views on the scheme, its scope, timeframe and how compensation is calculated. On such a complex issue, not everyone will get everything they would like.”
The FCA estimates that eligible consumers will receive an average payout of about £700 per agreement—a figure that’s lower than the regulator’s previous estimate of less than £950. This reduction, coupled with a total redress bill that’s less than initially feared, has sparked debate across the industry. Some lenders and trade bodies claim the FCA is “overcompensating,” while consumer advocates argue that the compensation still falls short of the financial harm suffered.
Adrian Dally from the Finance and Leasing Association, the organization representing the lending industry, told the BBC’s Today programme, “At first glance it does look to us like the FCA is overcompensating here. We don't recognise losses on that scale.” Dally added, “We think it's significantly less,” though he conceded, “some customers did not necessarily get the best deal.”
On the other side, consumer rights groups and legal experts say the FCA’s proposals are a long overdue step toward justice, but worry the average payout may not reflect the true scale of wrongdoing. David Bott, senior partner at Bott and Co, a law firm representing drivers in court, put it bluntly: “The true measure of success will be whether it delivers meaningful compensation that reflects the real financial harm suffered by consumers. The average payout figure of £700 per agreement raises serious questions about whether the scale of redress will match the severity of wrongdoing.”
Kevin Durkin of HD Law, who represented Marcus Johnson in a landmark Supreme Court case, echoed these concerns, describing the proposals as “watered down” and suggesting that mis-selling victims “have been treated unfairly for a second time” with the current plans.
Despite the controversy, the FCA’s scheme is designed to be simple and accessible. Consumers won’t have to pay to participate, and the FCA has moved swiftly to take down more than 700 adverts from claims management companies looking to profit from the compensation process. Rathi emphasized that people do not need to use a claims management company or law firm to access the scheme, potentially saving thousands in unnecessary fees.
For those who have already lodged complaints—about four million deals are currently in limbo—lenders will contact them directly once the scheme launches. If complainants don’t respond within a month, lenders are expected to review the case and pay compensation if appropriate. Those who haven’t yet complained will be contacted within six months of the scheme’s start and given six months to opt in. If, for whatever reason, a borrower doesn’t receive a letter (say, if contact details have changed), they’ll have a year from the scheme’s launch to make a claim.
The FCA acknowledges that some consumers may choose not to participate in the scheme and instead pursue their case in court, where outcomes could differ. The regulator also notes that the interest paid on redress will be much lower than that awarded in the infamous payment protection insurance (PPI) scandal, which ultimately cost British banks over £40 billion between 2011 and 2019. Even so, the car finance saga is shaping up to be one of the costliest in UK banking history.
Major lenders—including Lloyds Banking Group, Close Brothers, Barclays, Santander UK, and Bank of Ireland—have already set aside more than £2 billion to cover potential claims, according to Reuters. But with the final bill potentially reaching £9.7 billion, the financial impact remains significant, if not quite as catastrophic as some had initially feared. The FCA’s earlier estimates had ranged up to £18 billion, so this latest figure has brought a measure of relief to the industry.
Still, the process is far from over. The FCA’s figures are based on either 85% or, in a “very unlikely” scenario, 100% of eligible consumers coming forward. As Rathi admitted, “the numbers were estimates and susceptible to change.” Payouts are expected to begin next year, but for some—especially those whose lenders no longer have their details—it could take many months to see any money.
Consumer advocates are urging affected drivers to be proactive. The FCA has published guidance on how to complain, and Martin Lewis of Moneysavingexpert urged lenders not to fight the regulator’s proposals. “If they want clarity, then don't fight this. Let's all move on,” he said.
Alex Neill, co-founder of Consumer Voice, summed up the mood among campaigners: “This is a pivotal moment for the regulator, as compensating the millions of victims of the car finance scandal is long overdue.”
As the scheme rolls out, many consumers who previously used claims management companies may need to decide whether to stick with their representatives—who often take a cut of any payout—or switch to the FCA’s free scheme, potentially incurring an exit fee but maximizing their compensation.
With the FCA’s scheme set to launch in early 2026, millions of British motorists will finally get a chance to reclaim money lost to unfair car finance deals. But whether the compensation on offer truly matches the harm suffered remains an open question—one that will likely play out in the courts and public debate for years to come.
