Millions of victims of car finance mis-selling could receive less compensation than previously estimated, under plans from the regulator.
The Financial Conduct Authority (FCA) said payouts could result from 14 million motor finance agreements between April 2007 and November 2024.
The regulator previously suggested motorists could receive less than £950 per deal, but it now says the average will be about £700. Lenders could pay out £8.2bn in compensation.
The payouts are over commission arrangements between lenders and dealers, unfair contracts, and inaccurate information given to car buyers.
"It's time their customers get fair compensation," Nikhil Rathi, chief executive of the FCA, said.
"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 scheme would be free to access for consumers. The FCA estimates that 44% of all agreements made since 2007 will be eligible for payouts.
However, a ruling at the Supreme Court in August limited the breadth of these cases.
The FCA advises anyone who wants to make a complaint to get in touch with their lender or broker, and has this guidance on how to complain.
The vast majority of new cars, and many second-hand ones, are bought with finance agreements.
About two million are sold this way each year, with customers paying an initial deposit, then a monthly fee with interest for the vehicle.
In 2021, the FCA banned deals in which the dealer received a commission from the lender, based on the interest rate charged to the customer. These were known as discretionary commission arrangements (DCAs) and meant drivers were at risk of overpaying for the loan.
Other car buyers had an unfair contract because the commission paid to the dealer was so high, accounting for 35% of the total cost of credit and 10% of the loan, and some were not given accurate information about getting the best finance deal because of an exclusive rights given to certain lenders.
The regulator has now proposed a scheme to compensate drivers who were subject to these arrangements. If it gets the go-ahead, once the scheme starts:
The regulator admitted that consumers can choose not to take part in the FCA's compensation scheme and instead go to court, where they may get more or less compensation, based on the facts of their case.
David Bott, senior partner from Bott and Co, which is representing some drivers in court, said: "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."
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