The Financial Conduct Authority (FCA) has now shared its final decision on its long-awaited payout programme for 12.1 million motor finance agreements.
This means drivers across the UK can claim compensation for mis-sold car finance, taken out between 6 April 2007 and 1 November 2024. Thousands had already made complaints or started court claims, waiting for the FCA to complete its work, with the compensation scheme having previously been delayed.
The financial regulator has said compensation will be paid out at an average of £829 each, being more or less dependent on individual cases. The FCA said courts found firms 'broke the law by failing to disclose important information to customers'.
It said in its announcement: "Our final approach is fair for consumers and proportionate for firms. We have tightened eligibility so only those treated unfairly receive compensation.
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"We have adjusted how compensation is calculated to better reflect greater loss between 2007-2014."
The FCA added that firms are expected to pay out around £7.5 billion, down from £8.2 billion at consultation.
Nikhil Rathi, chief executive of the FCA, said: “We’ve listened to feedback to make sure the scheme is fair for consumers and proportionate for firms. It will put £7.5 billion back into people’s pockets.
“Now we need everyone to get behind it and ensure millions get their money this year. Payouts should not be delayed any longer, especially as household bills come under greater pressure."
He urged those eligible to lodge their complaints, with the scheme being the 'quickest, fairest, most cost effective way' to get compensation. Those who have already complained will apparently get their payments sooner.
How to make a claim if you were mis-sold car finance
The FCA says your first port of call should be to contact your lender, and it has a list of lenders' contact details on its website, along with template complaint letters.
To find out who your lender if, you could try reviewing old bank statements or contacting the dealership where you bought the car.
You should then receive an acknowledgement of your complaint, and then your lender has three months to tell you if you're eligible for compensation, and how much.
You then have one month to accept or challenge the compensation amount, and after you've done so, lenders have one month to pay you.
If you choose not to complain, your lender should still contact you if you're eligible.
If your finance agreement began between 6 April 2007 and 31 March 2014, you should hear from your lender by 28 February 2027.
If your agreement began between 1 April 2014 and 1 November 2024, you should hear from them by 30 December 2026
When will you receive compensation if you were mis-sold car finance?
The FCA says that if you've already complained, there is 'nothing stopping lenders paying tomorrow if they want to'.
But more likely, people who have already complained should receive their money by the end of the year.
The FCA says: "Millions of consumers will be compensated this year, most of the rest by the end of 2027."
Who is eligible?
Martin Lewis offers a checklist on MoneySavingExpert to figure out if you are 'likely impacted':
- Motor vehicle finance: Car, van, motorbike & campervan (not caravans).
- Eligible dates: Finance from 6 Apr 2007 to 1 Nov 2024.
- Finance types: Personal Contract Purchases (PCP) & Hire Purchase (HP) - not leased cars.
- Vehicles for personal use. Or sole trader or small partnerships for work if finance is under £25,000.
- Still applies if owner passed away, vehicle paid off or no longer owned.
- Had multiple eligible car finance deals? You may be due multiple payouts.
Mis-sold deals
Back in 2021, the FCA banned deals where car dealers received a commission from lenders based on the interest rate charged. Known as Discretionary Commission Arrangements (DCAs), this essentially meant the interest was increased to pay the dealer or broker extra commission.
Customers often weren't told about these and would be paying too much.
Due to exclusive arrangements between car dealers and lenders, other customers may have not been given accurate information about the best finance deal available.
And some were found to be subject to unfair contracts as the commission paid to the dealer was so high. I.e. if the commission was 35 percent or more of the total cost of the credit and 10 percent or more of the loan.
Jess Battison