FCA: Car finance scandal victims set for hundreds of pounds in payouts

Compensation payouts on 14m unfair car finance deals could start next year.

The Financial Conduct Authority (FCA) believes drivers will get around £700 each on average, with lenders paying out a total of £8.2bn.

“Many motor finance lenders did not comply with the law or the rules,” said FCA chief executive Nikhil Rathi.

“Now we have legal clarity, it’s time their customers get fair compensation.”

What is the car finance scandal?

In January 2024, the Financial Conduct Authority (FCA) started investigating discretionary commission arrangements (DCAs) on car loans issued between 2007 and 2021. 

DCAs helped banks and lenders providing car finance to allow dealers to set their own interest rates on repayment plans.  

This meant car dealers could undercut the bank or lenders’ preferred rate to secure a sale, or charge more so that they could earn higher commission. 

The practice was banned in 2021.

Earlier this year, the Supreme Court ruled that including hidden commission arrangements in car finance loans wasn’t automatically unlawful.

But it also ruled that in certain cases, not properly disclosing commission arrangements could be unfair and unlawful, allowing affected consumers to claim damages.

How will the compensation scheme work?

The scheme will cover motor finance agreements taken out between 6 April 2007 and 1 November 2024 where the lender paid a commission to the broker.

It applies to borrowers who weren’t told key details about their loans, such as:

• discretionary commissions
• high commission arrangements
• exclusive agreements between the lender and broker

You can complain directly to your lender for free, using a template letter and guidance on the FCA website. 

Anyone who has already complained doesn’t need to do anything.

If you haven’t complained yet, you’ll be contacted by lenders within six months of the scheme starting, and be given six months to opt in. 

If your lender no longer has your contact details, you’ll have up to a year from the scheme’s launch to make a claim.

The FCA has urged people not to use a claims management company or law firm, as this could cost you around 30% of any compensation paid.