Millions of drivers mis-sold car finance to receive average £829 in compensation
Millions of Drivers Mis-Sold Car Finance to Receive Average £829 in Compensation
The Financial Conduct Authority (FCA) has unveiled a plan to compensate millions of drivers who were sold motor finance agreements unfairly, with an estimated average payment of £829 per individual. This initiative, part of a broader redress scheme, is projected to cost lenders a total of £9.1 billion. However, the number of eligible loan agreements will decrease, with 12.1 million deals now qualifying compared to the initial estimate of 14.2 million.
Most new cars and many used vehicles are purchased through finance contracts, making this a widespread issue. The FCA aims to allocate £7.5 billion to affected customers, while administrative costs are expected to reach £1.6 billion. The regulator emphasized its commitment to resolving the matter, stating: “We expect everyone to support the scheme and lenders to address their customers’ concerns swiftly.”
“We have always been clear that where consumers suffered loss, redress must be paid,” said Shanika Amarasekara, chief executive of the Finance and Leasing Association. “But any redress scheme for a market of this size must accurately identify and compensate only those customers who genuinely suffered loss.”
Consumer advocates, however, argue the plan falls short. “Millions of people were overcharged, and our research shows some were pushed into real financial difficulty,” said Alex Neill, co-founder of Consumer Voice. “This was the regulator’s chance to put that right, but it instead appears to have let lenders off the hook.”
The scheme covers car finance deals dating back to April 2007, with the final period extending to November 2024. A key component involves discretionary commission arrangements (DCAs), where dealers received fees based on the interest rates applied to customers. These were often undisclosed and incentivized higher charges, leaving buyers paying more than necessary. The FCA banned DCAs in 2021, seeking to “draw a line under the past and support a healthy motor finance market for the future.”
Consumers may also qualify for compensation if they weren’t informed about other arrangements between lenders and dealers. The central compensation process allows individuals to file complaints and seek reparation without legal representation or court involvement. Some may still pursue legal action, though.
Fletcher Mumford, a driver attempting to reclaim overcharged finance for more than two years, described the process as slow. “I get a generic email saying they’ve got a high volume of people contacting them,” he said. “But when I phone, I’m connected to someone who can’t provide specific details.”
The FCA has introduced a transition period to give firms time to process claims. It also split the compensation scheme into two phases: one for agreements from April 2007 to March 2014, and another from April 2014 to November 2024. This division is intended to provide legal safeguards, ensuring delays in the later period don’t affect the earlier one if challenged.
Some lenders have questioned the FCA’s authority to handle deals prior to 2014, as the regulator only assumed control of consumer finance in April of that year. Beforehand, the Office for Fair Trading managed oversight. The FCA maintains it has the power to include earlier agreements but has structured the scheme to balance legal protection and fairness.
Additional reporting by Esyllt Carr and Mitchell Labiak