Millions of drivers who were mis-sold car finance agreements must wait until at least 2027 to receive compensation, regulators have announced. Average payments of about £829 are expected under the rules published by the Financial Conduct Authority (FCA). However, legal challenges to the scheme - which will be heard in February 2027 -mean compensation calculations and payments have been delayed.
The vast majority of new cars, and many second-hand ones, are bought with finance agreements. Customers pay an initial deposit to secure the vehicle, then a monthly fee with interest. Compensation could be given to many of those who took out a car loan between April 2007 and November 2024.
The decision by the FCA, the financial regulator, applies to about 12 million car loans - just over 40% of the total number during the period. In 2021, the FCA banned deals where car dealers received commission from lenders, based on the interest rate charged to the customer. These were known as discretionary commission arrangements (DCAs) and customers were often not told about them.
The FCA said this provided an incentive for a buyer to be charged a higher-than-necessary interest rate, leaving them paying too much. Other car buyers were also judged to have signed unfair contracts because the commission paid to the dealer was so high - accounting for at least 35% of the total cost of credit and 10% of the loan. Some customers were not given accurate information about the best finance deal because of exclusive arrangements between car dealers and lenders.
Under the latest proposals, the FCA expects average payouts of £829 per mis-sold agreement. The total cost of the compensation, including administrative costs, could hit £9.1bn. How much individual consumers receive will depend on the degree of harm suffered.
For some customers - especially if their contact details have changed - it could take many months before compensation is paid. Complaints have already been made about four million finance agreements. Those people do not need to do anything.
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