Motorists could soon be due a payout after the car finance mis-selling scandal, which has rocked the lending industry.
Millions of people who bought a car since 2007 were victims of unfair car loan deals, which saw dealers receive hidden commissions.
The UK finance watchdog, the Financial Conduct Authority (FCA), has now announced a redress scheme for affected drivers.
The scale of the practice was uncovered after three drivers took their cases to court, but only one of the cases was upheld in the Supreme Court, which was feared to limit how many drivers could get compensation.
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Here is a breakdown of who could get money and what you need to do if you are eligible.
Who is eligible for the compensation?
If you bought a car, motorbike or van on finance between April 6, 2007, and November 1, 2024, and the lender included a high commission or a contractual tie you weren’t properly told about, you might qualify for compensation.
Some 14 million deals will be considered unfair and qualify for compensation under the FCA scheme, although the watchdog was initially looking into around 32 million finance deals.
These were deals known as discretionary commission arrangements (DCAs), which allowed brokers, like car dealers, to hike up interest rates on car loans to increase their commission without telling the customer.
Around four million claims have been submitted so far, leaving around 10 million yet to be logged.
There have been reports of scammers calling people and pretending to be from the lender and offering fake compensation, or pretending to be from the FCA. If someone calls you offering compensation, you should hang up.
How can you make a claim?
If you think you might have been given an unfair car deal, the first step is to submit a complaint to the lender you used.
The FCA provides a template that people can download here.
If you are unsure who provided the deal, the information might be in old bank statements or contact the dealer where you bought the car to ask.
The provider should send you an acknowledgement within eight weeks after the complaint. Lenders don’t have to send a final response until after December 4, 2025.
Making a claim is free, and people do not need to use a claims management company or a law firm to get compensation.
How much compensation could drivers get?
Affected motorists are estimated to get £700 on average per car finance agreement, but the amount might vary depending on the seriousness of the case.
However, the FCA’s early estimates suggested that the average could be less than £950.
For the lending industry, the bill could be £8.2 billion.
Nikhil Rathi, chief executive of the FCA, 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.’
However, the lending industry representatives, the Finance and Leasing Association, accused the FCA of ‘overcompensating,’ telling the BBC’s Today programme that the number of affected people ‘seems implausibly high.’
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