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By JOHN-PAUL FORD ROJAS, DEPUTY BUSINESS EDITOR
Updated: 13:30 EDT, 30 March 2026
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Millions of motorists will receive an average of £829 in compensation for rip-off car finance deals under plans announced today by the City watchdog.
The Financial Conduct Authority (FCA) said 12.1million finance agreements made between 2007 and 2024 would be subject to the payouts as it revealed final details of the multi-billion pound scheme.
The number in line for cash from mis-selling has dropped from the FCA's estimated 14million car finance agreements affected when its plan was first announced in October, but the average amount has climbed from £695.
Lenders have been lobbying the FCA to water down proposals for the scheme since they were first announced last year.
But others have said the planned payouts for consumers should be larger.
The total cost of the compensation is now expected to be £7.5billion, if 75 per cent of those affected make claims, lower than the previous £8.2billion estimate.
The FCA said 'eligibility criteria have been tightened' but average compensation has been increased for older agreements. Interest will also be paid on compensation. Consumers have until the end of August 2027 to make a claim.
The watchdog will cap payouts in about a third of cases 'to ensure no one is put in a better position than had they been treated fairly'.
The FCA has laid out its scheme and told people not use claims companies
The outcome was being closely watched by lenders who have already set aside billions to cover their estimated exposure to the compensation scheme.
Lloyds Banking Group has set aside £1.95billion, Santander has taken a £478million hit and Barclays says it is on the hook for £325million while smaller lender Close Brothers has made a £300million provision.
Today’s announcement came after the close of markets but the banks' shares will be in the spotlight when trading resumes tomorrow.
Lenders have been critical of the scheme, with Lloyds saying it did not believe it ‘reflects the actual loss to the customer’.
And Close Brothers boss Mike Morgan recently told the Mail on Sunday: ‘You knew what you were paying for this car and you got the car. The customer got value throughout this.’
Read More
The outrageous reason why millions of victims of the car finance scandal may be unable to claim payouts
However, a group of MPs last week claimed that ‘drivers risk being short-changed’ by the FCA’s initial plans. They argued motorists should be receiving a typical £1,200 in compensation rather than £700.
Gary Greenwood, banking analyst at Shore Capital, said ahead of the announcement said the FCA needed to strike a fine balance.
‘Should the FCA proceed with its original proposals largely unchanged, we think there is a meaningful risk of a judicial review, which could delay implementation by a further 12–18 months,’ he said.
‘Conversely, if the scheme is diluted too aggressively, there is a risk that claimants opt out of the FCA process and instead pursue lenders directly through the courts, often with the support of law firms or claims management companies.
‘While this route could result in higher individual payouts, up to a third of any compensation may be absorbed by adviser fees.
‘As such, the FCA faces a fine balance in designing a scheme that is both legally robust and attractive enough to drive broad participation.’
Car finance compensation: How it works and how to claim
By Simon Lambert
The Financial Conduct Authority has revealed the details of its car finance compensation scheme, first announced in October.
What did the FCA say?
The watchdog’s update reduced the number of agreements affected from 14million to 12million but said average payouts would be £829 - higher than the previous £700 estimate.
Lenders will be expected to pay minimum interest of 3 per cent on compensation and millions of drivers should start to get cash this year.
The FCA warned consumers to avoid claims companies and to use the official scheme. It lays out how drivers can claim at fca.org.uk/carfinance.
What is the car finance scandal?
Most new cars and some second-hand ones are bought via personal contract purchase and hire purchase finance deals. Drivers pay a deposit, borrow the remainder from a lender, and pay it back monthly, with interest. Many dealers were paid hidden commissions by lenders for signing buyers up. The scandal is about these commissions between 2007 and 2024.
How many people will get payouts?
An estimated 12 million agreements will be covered by the compensation, but this covers some owners who had more than one agreement. If you had three loan deals that qualify, you might expect an average of £2,487. Payouts will depend on the size of your loan’s commission. The watchdog will cap payouts in about a third of cases, 'to ensure no one is put in a better position than had they been treated fairly'.
When will the scheme start
Lenders will get a set-up period to prepare and then the scheme will start on 30 June 2026, for loans taken out after 1 April 2014, and on 31 August 2026, for loans taken out before April 2014.
Who can claim?
The key is whether car buyers were signed up to something called a Discretionary Commission Arrangement. They allowed the broker to adjust loan interest rates to get a higher commission. Those with ‘a high commission arrangement’ of at least 39 per cent of the total cost of credit and 10 per cent of the loan can also claim. Buyers affected by contractual ties, where a broker only used one lender or gave it right of refusal on the loan can also claim.
How to claim
Write directly to your lender to start your claim. The FCA has a list of lenders on its website and a template complaint letter to send them. Your lender has three months to respond telling you if you are due compensation and how much. You have one month to accept or challenge that. If you are unhappy you can complain to the Financial Ombudsman Service.
How do I know if I have a DCA?
Contracts were often written in a way that made it unclear if you had a DCA and made working out commission hard. Contact both the lender and the car dealer and ask them about it directly. The FCA says they must tell you.
What isn’t covered?
Motorists who took out a PCP may be due compensation and those who took out a HP agreement.
Personal Contract Hire lease deals aren’t covered, nor are interest-free agreements, agreements for more than £25,000 before 6 April 2008, high value loans (those higher than 99.5 per cent of other loans that year) or business agreements.
What was the court case on this?
Last August, Supreme Court judges rejected a challenge that would have meant compensation for motorists who were simply unaware commission was paid. But they admitted if there was ‘high commission’ and if the amount was not ‘fair and proportionate’ then some kind of compensation might still be due. The FCA stepped in to sort the situation out.
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