Compensation details for millions of drivers set to be revealed

When the financial regulator announces its final rules on the scheme, millions of drivers will find out how they can claim compensation for mis-sold vehicle finance.

The Financial Conduct Authority (FCA) will announce its final decision late this afternoon, outlining the compensation scheme for 14 million motor finance agreements.

The long-running multi-billion-pound drama, which also included a decision at the UK's highest court, is expected to result in average compensation of around £700 on a number of deals that occurred between April 2007 and November 2024.

However, the regulator's programme could also face litigation from lenders and claims management firms, prolonging the wait for victims.

The payouts relate to commission arrangements between lenders and dealers, unfair contracts, and inaccurate information provided to car owners.

The FCA has been working on a central plan that will not force those mis-sold deals to go to court, but some drivers may opt to pursue court action in the hopes of larger payouts.

The FCA had predicted that 44% of all motor finance agreements from 2007 to late 2024 would be eligible for payouts, totalling more than £8 billion. Lenders now face a further £3 billion in administrative fees.

A decision by the Supreme Court in August limited the breadth of these lawsuits, which otherwise may have amounted to tens of billions of pounds.

The overwhelming majority of new cars, as well as many secondhand ones, are purchased with finance agreements.

The FCA has outlawed 2021 transactions where car dealers received commission from lenders based on the interest rate paid to the customer. These were often described as discretionary commission arrangements (DCAs) and were not disclosed.

According to the FCA, this provided an incentive for a buyer to be charged higher interest rates than was required, but it meant they were paying too much.

Other sales were also unjustified, according to the regulator, who based court decisions on court decisions.

These findings were too general, according to the lenders' trade body, and compensation could be too generous.

That will result in redress being paid to millions of customers with no wrong relationship or no loss,

the Finance and Leasing Association (FLA) has said.

Major lenders, including Lloyds, the UK's largest banking group, have already set aside billions of pounds. Close Brothers has laid off hundreds of workers due to the company's inability to fund the compensation programme.

Long wait for drivers

Many drivers have waited years for payouts after DCAs were barred in 2021, and some drivers' deals date back almost 20 years. Thousands of people have already filed or started court claims, only to see their cases suspended until the FCA completes its investigation. Following pressure from lenders, the regulator had expected the compensation programme to be operational and running by early 2026, but delays and extended consultation have postponed the deadline. A new compromise has enabled the transition from three to five months before lenders will need to alert potential customers who may be eligible.

For the most part, current plans indicate that drivers will be contacted by their lender to ask them to verify their claim. Many that haven't made a claim will be given an invitation and a payout as soon as possible. However, if lenders or claims administration firms challenge the FCA's final decision, it could be further delayed. They have 28 days to present a constitutional challenge to a tribunal, which could lead to a decision in a higher court before any payments are made. Get all the headlines you need to start the day with our flagship newsletter.