Car Finance Scandal: Millions of Drivers to Receive £829 In Compensation

Millions of drivers will receive compensation averaging £829 per person after being mis-sold motor finance agreements, under new plans by the Financial Conduct Authority (FCA).

For almost two decades, around 12 million car finance agreements were mis-sold, according to the financial watchdog. This is down from the 14 million agreements previously estimated to be affected.

The FCA published its compensation scheme proposal, which is estimated to cost lenders around £9.1bn.

Firms are expected to pay £7.5bn to people who took out eligible motor finance deals. A further £1.6bn will be charged to cover the administrative cost of running the scheme.

How will the compensation scheme work?

The FCA revealed that lenders will get a short “implementation period” to prepare for the scheme.

This will be up to:
– 30 June 2026 for loans taken about from 1 April 2024
– 31 August 2026 for those agreed earlier

If you’ve already filed a complaint, your lender must notify you whether you’re eligible for compensation and how much you’ll get within 3 months of the end of the implementation period.

Customers who are unhappy with the amount of compensation offered can complain through the Financial Ombudsman Service (FOS). The FOS will then open an investigation to check whether the lender in question is following the rules of the scheme.

Lenders will also get another 6 months from the end of the implementation period to contact people who haven’t complained if they’re potentially owed money or were timed out of the scheme.

If you’re contacted about compensation, you’ll need to respond within 6 months if you want to join the scheme.

You can still file a complaint to a lender if you suspect you were mis-sold car finance until the end of August 2027.

What was the car finance scandal?
Many new and second-hand vehicles in the UK are bought using car finance agreements.

This involves a customer agreeing to pay an initial deposit for the vehicle and monthly installments with interest payments.

Many car finance deals faced scrutiny due to something called “discretionary commission arrangements” DCAs.

DCAs meant that brokers, including car dealers, were able to increase the interest rates charged on car finance repayments to earn more commission.

Customers weren’t usually informed about this arrangement and in 2021 the FCA banned them, ruling that they provided an incentive for buyers to be overcharged leaving them paying too much.

In October 2025, the Court of Appeal ruled that DCA payments made before 2021 without borrowers being fully informed were unlawful.

Although some lenders appealed this decision in the Supreme Court, one complaint was upheld.

This resulted in the FCA setting up a free compensation scheme for affected customers.