The FCA has said there are an estimated 12.1m deals which will qualify as mis-sold under the scheme, down from the 14.2m unfair agreements discussed during the consultation process. The total cost to lenders has also reduced, from the £11bn initially reported down to £9.1bn. In contrast, the £830 compensation claimants can be paid per mis-sold deal is higher than the £700 most had been expecting.
Alex Neill, a co-founder of consumer rights group Consumer Voice, said: "While compensation payouts for some have increased, it comes at the expense of millions of other drivers who are now excluded altogether. The FCA has narrowed eligibility and reduced the overall bill for lenders, raising real concerns that many people will still be under-compensated.
"Millions of people were overcharged, and our research shows some were pushed into real financial difficulty. This was the regulator’s chance to put that right, but it instead appears to have let lenders off the hook."
Who has been excluded from the car finance redress scheme?
The key change from the proposals we reported on last month is the exclusion of roughly two million deals from the scheme. The drivers affected will no longer receive compensation because the FCA has decided the commission paid on those mis-sold deals is not significant enough to trigger compensation. Loans for expensive luxury cars will be excluded from the scheme, with the FCA stating they are "not suitable for a mass-market redress scheme".
The changes will save the lending industry a significant amount of money. Around £7.5bn will be paid out in compensation, well below the original estimate of £8.2bn. The total cost of the scheme will be £9.1bn, down from £11bn, with more savings coming from the FCA relaxing the complaints procedure.
Nikhil Rathi, the chief executive of the FCA, said: "We’ve listened to feedback to make sure the scheme is fair for consumers and proportionate for firms. It will put £7.5bn back into people’s pockets.
"Now we need everyone to get behind it and ensure millions get their money this year. Payouts should not be delayed any longer, especially as household bills come under greater pressure."
Who can claim through the scheme?
The redress scheme is for people who signed up to a car finance deal between 6th April 2007 and 1st November 2024.
The main targets are deals that featured a discretionary commission arrangement, or DCA. These agreements involved the dealer receiving an undisclosed commission based on the rate of interest charged to the borrower. DCAs were banned by the FCA in 2021 for being unfair to consumers, as they effectively incentivised dealers to set higher rates of interest.
The scheme will also include some car buyers who signed deals paying an excessive amount of commission - defined as at least 35% of the total cost of the credit and 10% of the loan - or buyers who were given inaccurate information on the best deals available because of an exclusivity agreement between a lender and a car dealer.
The FCA estimates that 14.2m unfair agreements were signed over the qualifying period, which is 44% of all agreements made since 2007.
Are these rules final?
There is still one final hurdle before the FCA's compensation rules are set in stone. Lenders wishing to challenge the FCA's scheme will be allowed 28 days to present their case to a tribunal, though the case may then be referred to a higher court for a final decision. Reports suggest several lenders will push to prove in court that the FCA has overreached, though some major banks, including Lloyds, have apparently already set aside funds to pay claims.
The regulator acquiescing to the lending industry and watering down the scheme should be enough to stave off a major legal challenge that could derail the program entirely, but any court action will likely cause delays.
FCA chief executive Nikhil Rathi warned against any further delays from legal challenges, saying: "Delivering compensation promptly also gives lenders the chance to rebuild trust and means we can draw a line under the past and support a healthy motor finance market for the future."
There is also still the potential for government intervention, with Rachel Reeves last year siding with lenders to warn against large payouts to consumers, and reportedly even considering overruling the initial Supreme Court decision that triggered the compensation scheme.
How much will successful claimants get?
The FCA will set out how lenders are to assess claims and calculate compensation as part of the scheme, but it estimates payouts will average £830, based on the expectation that 75% of affected consumers will claim.
The confirmed average payout of £830 is higher than many consumers anticipated, yet this increase is a byproduct of stricter qualification criteria. This narrowed scope means the total industry bill is now quoted at £7.5bn, a disappointing outcome for those who followed earlier forecasts. These previous figures, which included a £44bn forecast from analysts and an initial £18bn FCA estimate, suggested a much broader scale of redress than what has been delivered.
Some consumers will receive more than £830 and some less, depending on the circumstances of their claim. The FCA expects 12.1m agreements will be considered unfair, but this does not translate to 12.1m people, as some consumers will have signed multiple car finance agreements between April 2007 and November 2024.
The payouts should be boosted by inflation, likely to be the Bank of England base rate plus 1%.
How can you make a car finance redress scheme claim?
Victims of the car finance scandal will fall into three groups: those who have already complained to their lender, those who can be contacted by their lender, and those who cannot be contacted by their lender.
Over four million car buyers have already submitted a complaint to their lender, and these are the people who will be compensated first once the scheme goes live. Lenders will have until the end of July 2026 to respond for car finance taken out between April 2014 and November 2024, and until the end of August 2026 for deals agreed between April 2007 and March 2014. If contacted, consumers must respond within six months.
If you think you may have been affected, you should complain to your lender now. If you are unsure who your agreement was with, the FCA recommends looking through old bank statements, contacting the dealer who sold you the car and checking your credit file.
Affected consumers who have not yet made a complaint but can still be reached by their lender should be contacted by the end of August to ask whether they want their case reviewed. They will then have six months to respond.
Unfortunately, many lenders will not have retained the details of their customers. These may have been lost or deleted as part of policies to purge customer data after 6 years, the legal minimum period to retain such contracts until 2024. Consumers who have not been contacted by their lender by the end of August 2026 should assume they fall into this category and make a complaint directly to their lender before the end of August 2027. The FCA has included a template letter and instructions on its website.
Consumers who receive a final response from their lender that they are not happy with will be able to escalate their case to the Financial Ombudsman Service.
Do you have to use the car finance redress scheme to make a claim?
If a consumer does not want to participate in the FCA redress scheme, they may choose to take legal action directly against their lender. It is possible that victims could get a higher payout by pursuing direct legal action, though this will likely involve expensive legal costs. The FCA recommends that anyone considering doing so should seek independent legal advice.
Should you use a claims management company (CMC)?
The FCA does not recommend using a claims management company or law firm to manage your claim through the car finance redress scheme. Making a claim is free, but using a CMC will mean you need to pay fees and VAT out of the compensation you receive. Action has been taken against FCA-regulated CMCs for poor practice, with more than 800 misleading adverts removed or amended in the last two years and five firms punished by the regulator.
You can end your agreement if you have already signed up with a CMC, but you may need to pay a fee to do so.
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