The UK's Financial Conduct Authority (FCA) has dealt a blow to millions of motorists expecting compensation for mis-sold car finance agreements, with payments now set to be delayed until at least 2027. The proposed payouts, averaging £829 per affected agreement, were initially expected as part of the regulator's efforts to address commission structures between car dealers and lenders.
The compensation scheme targets 'discretionary commission arrangements' (DCAs), banned by the FCA in 2021, which allowed dealers to receive commissions from lenders tied to interest rates charged to customers. This led to higher-than-necessary costs for individuals, often without their knowledge. The FCA's investigation covers approximately 12 million car loans, representing over 40% of all agreements made between April 2007 and November 2024.
While DCAs are the primary focus, some customers may also be eligible for compensation if they were subjected to unfair contracts due to excessively high dealer commission – specifically, where it accounted for at least 35% of the total cost of credit or 10% of the loan. Furthermore, instances where customers did not receive accurate information about best available finance deals, often due to exclusive arrangements between dealers and lenders, are being considered under the scheme. The total cost of compensation, including administrative expenses, could reach £9.1 billion.
For those who have already lodged a complaint – estimated at four million finance agreements – no further action is required for now. However, individuals yet to complain are urged by the regulator to contact their car loan provider directly. The FCA stresses that its central compensation scheme is designed to be free for consumers to use, enabling them to pursue claims without needing lawyers or claims management companies, which often charge substantial fees.
The precise timing of individual payouts remains uncertain due to ongoing legal challenges. While the FCA's original timeline included specific dates for lenders to respond and compensation notifications, these are now subject to revision. Those who complain before the scheme is fully operational will likely receive compensation faster, while individuals not receiving a letter from their lender can still initiate a claim.