MILLIONS of drivers will get £700 in car finance payouts after the financial watchdog unveiled the details of a major redress scheme.
Motor finance firms will be expected to cough up £8.2billion for breaking Financial Conduct Authority (FCA) rules.
Around 14million motor agreements taken out between April 6 2007 and November 1 2024 will be due a payout.
The FCA says lenders broke the rules by hiding important information, leaving customers unable to negotiate or find better deals, and in some cases, paying more for loans.
It also said that half of those eligible for compensation haven't claimed yet due to confusion, but 81% say a clear scheme would encourage them to act.
The FCA wants to make the process simpler and fairer for those owed money and that's why it's now consulting industry wide redress scheme.
Lenders now have until November 18 to respond.
The FCA will then publish the final rules by early 2026, launch the scheme soon after, and start payments late next year.
Nikhil Rathi, the FCA's chief executive, said: "Many motor finance lenders did not comply with the law or the rules.
"Now we have legal clarity, it’s time their customers get fair compensation. Our scheme aims to be simple for people to use and lenders to implement.
"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.
"But we want to work together on the best possible scheme and draw a line under this issue quickly.
"That certainty is vital, so a trusted motor finance market can continue to serve millions of families every year."
In August, the FCA announced plans for a redress scheme, even after the Supreme Court overturned a ruling that accused companies of failing to disclose "hidden" commission payments to borrowers.
These "commission disclosure complaints" could have affected up to 99% of car finance agreements, potentially costing lenders millions in payouts.
However, the Supreme Court sided with lenders, allowing them to avoid compensating millions of drivers.
Despite this, many banks had already set aside funds for claims.
Close Brothers allocated £165 million, Lloyds Bank £1.15billion, Santander £290million, and Barclays £95million.
However, the FCA still believes that millions of drivers are owed compensation due to "discretionary commission arrangements" (DCAs).
These agreements allowed brokers and dealers to raise interest rates without informing borrowers, earning themselves higher commissions.
DCAs were banned in January 2021 but were used in up to 40% of the 14.6million car finance agreements made between 2007 and December 2020.
The FCA had been investigating these practices prior to the Supreme Court ruling and said in August that a financial redress scheme is necessary to compensate affected customers.
By Tara Evans, Head of Consumer
If you’re one of the 14 million drivers who took out a car finance deal between 2007 and 2024, then it’s worth checking if you’re due compensation.
Today, the city watchdog revealed the details of the scheme.
We explain who is eligible below – but you need to check your contracts.
If you don’t have your contract then it’s worth logging a complaint anyway.
Crucially if you complain and the firm can’t find the information then they’ll have to pay out.
Drivers will get an average pay out of around £700 per contract.
Payments won’t hit bank accounts until next year and while firms will contact customers if they are due a refund, you can speed it up by complaining now.
Don’t be fooled into getting a claims management firm or law firm to make the claim for you, they’ll take a slice of the cash.
You can do it yourself.
Drivers who took out personal contract purchase (PCP) or hire purchase agreements before between April 6 2007 and November 1 2024 where commotion was payable by the lender to the broker.
Anyone who wasn't told about key details such as commission payments should complain now.
The FCA said that drivers do not need to use a claims management firm or law firm to make a claim. They have a template letter on their website for motorists to use.
Lenders will look at claims where drivers have already complained once the scheme is launched.
The FCA said you could speed up getting your compensation by logging a claim now.
But lenders will contact drivers who haven’t complained within six months of the scheme starting.
You will only get compensation if your lender didn't telling you about one of three arrangements:
The FCA estimates that the average payout will be around £700 per agreement.
However, the final amount will vary depending on the specifics of the case.
If you had more than one car finance agreement during the specified period that meets the criteria, you can claim compensation for each one.
For example, two eligible agreements could result in an average payout of around £1,400.
In a small number of very serious cases that closely resemble the details of the Supreme Court ruling in August, customers may receive the full commission amount as compensation.
However, the FCA said these cases are expected to be rare.
Simple interest will also be paid on top of the compensation amount, calculated from the date of overpayment until the compensation is paid.
Several major lenders banks have already set aside funds for claims.
In September, BMW's UK car finance business said it has allotted £209million.
While Close Brothers said it's set aside £165million.
Lloyds Bank allocated £1.15 billion, Santander £290million, and Barclays £95million.
The FCA estimates the redress scheme will cost lenders £11billion in total, including admin costs.
Of this, £8.2billion is expected to go directly to consumers, assuming 85% of those eligible make a claim.
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