Millions of drivers set for £829 in compensation over unfair car finance deals
Around £7.5 billion could be paid out under a compensation scheme for people mis-sold a car loan between April 2007 and November 2024.
Compensation payouts are due on around 12.1 million unfair motor finance deals, at an average of £829 each, the financial watchdog has said as it unveiled the final plans for its redress scheme.
Listen to this article
The Financial Conduct Authority (FCA) expects to pay out around £7.5 billion under its compensation scheme for people mis-sold a car loan between April 2007 and November 2024.
That's lower than the previous £8.2 billion estimate, and is based on about 75% of eligible consumers making a claim.
The City watchdog said millions of people will get their money back this year as the industry-wide scheme is rolled out.
At an average of £829 each, most drivers owed compensation can expect to receive a higher payout than the £700 estimated under the regulator's previous proposals.
Drivers who have already complained will get their payments sooner, with eligible motorists advised to lodge their complaints as soon as possible
Nikhil Rathi, 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 £7.5 billion back into people’s pockets.
“Now we need everyone to get behind it and ensure millions get their money this year.
Read more: Car finance saga: Millions of motorists to find out how they will be compensated
Read more: Close Brothers to cut almost quarter of workforce in wake of car finance scandal
“Payouts should not be delayed any longer, especially as household bills come under greater pressure.
“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.”
However, the FCA could also still face challenges from lenders and lawyers - while drivers may avoid it and instead take cases to court.
Rachael Jones, director of automotive finance at Autotrader, said: “We support this pragmatic and proportionate approach from the FCA that strikes the right balance between ensuring robust protection and transparency for consumers, while underpinning the stability of an automotive sector that contributes billions to the UK economy every year.
“It’s vital that this scheme doesn’t inadvertently impact a market that has adapted and is now working well for consumers.
“Modern car buyers expect transparency and choice and we’ve long made finance details highly visible on more than 300,000 vehicles advertised on Autotrader to help build consumer confidence and trust.
“Most buyers rely on finance to fund their next car purchase and so it is vital this sector can continue to help them access the vehicles they want.”
There are also concerns many drivers could go uncompensated, with the final scheme meaning around two million fewer deals are eligible for compensation.
Alex Neill, co-founder of consumer rights group Consumer Voice said: “The FCA has narrowed eligibility and reduced the overall bill for lenders, raising real concerns that many people will still be undercompensated.
“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.
“Our advice to drivers is don’t wait, complain now. Lenders are supposed to contact you but there are pitfalls associated with waiting.”
She also warned about scammers, adding: “Be cautious of unexpected calls, texts or emails offering guaranteed compensation.“There are scams and unscrupulous firms already operating and this is only set to get worse.”
Aidan Rushby, chief executive and founder of digital car finance lender Carmoola, said: “What matters now is whether drivers actually receive compensation quickly, clearly and without hassle.
“Redress must reflect genuine harm. But it must also be applied proportionately and consistently. Restoring confidence depends on delivering compensation clearly, consistently and as quickly as possible.”
He added: “We believe car finance should be simple to understand, transparent in how it works, and fair in how it treats people. Trust now has to be earned. That is a healthy shift for the market.”
Richard Pinch, senior risk director at banking and credit advisory consultancy Broadstone, said firms will need to undergo “a significant administrative exercise” highlighting the scale of compensation and “the complexity of identifying affected customers and calculating appropriate redress across historic agreements that in some cases go back many years”.
The FCA set out draft plans last year but made several changes after receiving more than 1,000 responses to its consultation.
It estimated that around 14 million deals, or 44% of all those made since 2007, were unfair and therefore eligible for compensation.
This was expected to come at a total cost of £11 billion to the industry, including the total payouts and the operational costs of running the scheme.
Lenders and car finance providers had been challenging the FCA’s proposals with some raising concerns that the expected amount of compensation is too high and does not accurately reflect what customers lost.
On the other side, some consumer groups and MPs have argued that many motorists will be short-changed under the current plans.
The FCA has already announced some changes that it is making to the process since the proposals were unveiled last year.
This includes giving lenders more time to contact motor finance customers from when the scheme is officially launched.
But it is also aiming to streamline the process by allowing those due redress to accept it immediately without waiting for a final determination.