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FCA announces final compensation scheme for mis-sold car finance
The UK's financial regulator will release its long-awaited decision today, outlining how 14 million motorists may claim refunds for unfair lending practices spanning nearly two decades.
Scope of the payout programme
The Financial Conduct Authority (FCA) will detail a centralised compensation plan covering finance agreements issued between April 2007 and November 2024. The scheme targets hidden commission deals, misleading contracts, and inaccurate advice given to buyers during vehicle purchases.
Estimates suggest average payouts could reach £700 per claim, with the FCA previously projecting total compensation exceeding £8 billion. Lenders also face an additional £3 billion in administrative costs.
Legal battles and delays
A Supreme Court ruling in August 2025 narrowed the scope of eligible claims, which analysts had warned could otherwise have cost tens of billions. Despite this, lenders and claims management firms may still challenge the FCA's final decision, potentially delaying payments further.
The Finance and Leasing Association (FLA), representing lenders, has argued the proposed scheme risks overcompensating customers who suffered no financial harm, diverting funds from those genuinely affected.
How the scheme will work
The FCA's plan avoids requiring individual court cases, though some drivers may pursue legal action for larger settlements. Most claimants will be contacted directly by their lenders, with those who have already filed complaints expected to receive offers sooner.
However, a 28-day window for legal challenges could push back the start of payouts. The regulator had initially aimed to launch the scheme by early 2026 but extended consultations and lender pressure delayed the timeline. Lenders now have three to five months to prepare before reaching out to eligible customers.
Industry impact
Major banks, including Lloyds, have already set aside billions to cover compensation costs. Close Brothers, another affected lender, has cut hundreds of jobs due to its exposure to the scheme.
The controversy stems from discretionary commission arrangements (DCAs), banned by the FCA in 2021. These deals allowed dealers to earn higher commissions by inflating interest rates for buyers, often without disclosure. The regulator determined such practices created an unfair incentive, leading to overcharging.
What happens next
Drivers with finance agreements from the covered period will need to wait for lenders to initiate contact. Those who have already lodged complaints may see faster resolutions, but legal challenges could extend the process. The FCA's final decision will be published later today (17:00 GMT).
