Millions of motorists to get £700 payout due to car finance scandal

The Financial Conduct Authority (FCA) estimated its redress scheme could cost lenders £8.2 billion in compensation, based on about 85 per cent of eligible consumers taking part.

This is lower than the £9 billion to £18 billion range it had previously projected.

The FCA also previously said drivers could receive less than £950 in compensation per motor finance deal, but it has now lowered this estimate to an average of about £700.

Motor finance firms broke the law or its rules by not properly informing customers about commission paid by lenders to the car dealers that sold them the loan, the regulator said.

Read more: ‘Relief’ for motorists as average cost of insurance has fallen by £60 annually

Read more: Blow to millions of motorists over car finance mis-selling as Supreme Court overturns landmark ruling

This meant that many motorists did not have the opportunity to negotiate or find a better deal and therefore may have paid a higher interest rate for their loan.

The watchdog has been looking into data from across some 32 million agreements made between 2007 and 2024

It believes setting up a free compensation scheme will be easier and quicker for customers to access, and more cost-effective for firms by removing much of the legal and administrative work.

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.”