FCA Announces £8.2bn Car Finance Compensation Scheme, Claimants Could Receive £700 Each
Millions of UK drivers could be in line for compensation after the Financial Conduct Authority (FCA) unveiled a new scheme targeting mis‑selling in the motor finance industry.
The regulator estimates payouts could reach £8.2 billion, with each successful claimant receiving roughly £700 per agreement.
The scheme covers regulated motor finance agreements taken out between 6 April 2007 and 1 November 2024, where lenders paid commission to brokers. However, the FCA stresses that not all agreements will qualify.
“We estimate 14.2 million agreements, 44% of all agreements made since 2007, will be considered unfair because they involve inadequate disclosure of one or more of the following a discretionary commission arrangement; high commission (where the commission is equal to or greater than 35% of the total cost of credit and 10% of the loan); contractual ties that gave a lender exclusivity or a right of first refusal.”
The regulator predicts that 85% of eligible consumers will participate in the scheme, though the cost could rise to £9.7 billion in the unlikely event that every claimant comes forward.
We’re consulting on an industry-wide scheme to compensate car finance customers who were treated unfairly.
A compensation scheme will be free, easy-to-access and help ensure the market works well for future consumers.
Read more https://t.co/ZtRHxa1MtL#CarFinance pic.twitter.com/2bkif8Qa93
— Financial Conduct Authority (@TheFCA) October 7, 2025
Who Qualifies?
Compensation will primarily go to drivers affected by discretionary commission arrangements (DCAs), where brokers or dealers inflated interest rates to increase their commission, a practice banned in 2021.
Other qualifying factors include:
- High commission levels (≥35% of total credit cost or ≥10% of the loan)
- Contractual exclusivity between lender and broker
- Inadequate disclosure of commission arrangements
Major lenders implicated include Barclays, Santander, Close Brothers, and Lloyds Banking Group via its Black Horse finance arm.
Consumers unsure whether they qualify are advised to check guidance from Martin Lewis on car finance refunds.
Martin Lewis Issues Warning
Consumer advocate Martin Lewis has cautioned against using third-party claims management firms, which often charge high fees while offering little value.
NEWS. CAR FINANCE COMPENSATION SCHEME TO BE LAUNCHED BY @THEFCA (brief notes done at speed, full video explainer to follow)
– It will go back to 6 April 2007 until Nov 2024
– It will cover discretionary commission arrangements, high commission (commission 35%+ of total credit…— Martin Lewis (@MartinSLewis) October 7, 2025
“You really need to be careful with car finance reclaiming adverts right now, because you may sign up to one and end up giving away 30% of your money and getting absolutely nothing back in return.”
He emphasises that most claims could be handled directly by lenders without the need for legal intervention.
Challenges and Industry Reactions
The scheme has sparked debate. Some lenders question the cost estimates, and data retention issues could mean a significant portion of claims may be lost.
The FCA has indicated that firms may rebut the presumption of unfairness in certain circumstances, such as evidence of adequate disclosure or informed consumers.
“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,” Rathi added.
A consultation period is open until November 2025, after which the FCA will refine the scheme before implementation.
Complaints and Contact Timeline
More than four million complaints have already been lodged with lenders, prompting the FCA to require firms to contact affected consumers ahead of the scheme’s launch.
Consumers who have not previously complained will be contacted within six months, with the chance to opt in.
“Any consumers who have not been contacted can ask their firm to review their case at any time within one year of the scheme start date.
We will run an advertising campaign to raise awareness of the scheme,” the FCA added.
Lenders will have three months to reach out to existing complainants once the scheme starts, with a one-month opt-out window for those contacted. Claimants who do not respond will automatically remain in the scheme.
“They should pay what you are owed within 28 days of that confirmation,” said FCA chief executive Nikhil Rathi.
“People were not told important information about their motor finance deals and that’s because firms broke the law and our rules.
Some people have lost out paying more for their loans and we’re proposing a scheme to ensure they’re fairly compensated.” The scheme is expected to be fully operational by early 2026.
What does this mean for Consumers?
UK drivers who financed a car between 2007 and 2024 may be eligible for compensation if their broker or dealer failed to disclose commission arrangements or incentivised higher interest rates.
Searches for “car finance compensation Martin Lewis” are expected to spike as consumers seek guidance. The FCA advises caution with third-party reclaim firms and encourages people to make claims directly through their lender where possible.
This scheme represents one of the largest redress initiatives in UK financial services since the PPI scandal, offering hope to millions of drivers who may have overpaid on their car loans.
