The Financial Conduct Authority (FCA) said it will consult on an industry-wide compensation scheme
Millions of motorists could be in line for a slice of a whopping £18bn compensation pot, as the Financial Conduct Authority (FCA) plans to consult on an industry-wide redress scheme. The potential payout comes after it was revealed that numerous car finance firms failed to comply with regulations or the law by not informing customers about commission paid by lenders to car dealers who sold the loans, according to the FCA.
The watchdog estimates that most will likely receive less than £950 in compensation. The final total cost of any compensation scheme is estimated to be between £9 billion and £18 billion, the FCA added.
Consumer champion Martin Lewis said in a video posted to X that millions of people are likely to be due a share of up to £18 billion. He told Sky News the consultation is “likely to mean 40% of people who got a car finance deal between 2007 and 2021 will be due some form of redress, likely to be hundreds not thousands of pounds”.
The consultation is set to be launched by early October. If the compensation scheme goes ahead, the first payments should be made in 2026. It follows Friday’s ruling by the Supreme Court on cases in which the FCA had intervened.
While some motor finance customers will not get compensation because in many cases commission payments were legal, the court ruled that in certain circumstances the failure to properly disclose commission arrangements could be unfair and therefore unlawful, the FCA added.
The FCA has reassured that individuals who have already lodged complaints need not take any further action. Those who suspect they may have overpaid their motor finance lender due to undisclosed commissions are being urged to lodge a complaint immediately.
Claims process
The FCA emphasises that consumers do not need to employ a claims management company or law firm, which could potentially cost them around 30% of any compensation received. To initiate a complaint, the FCA advises people to contact their lender or broker directly, and they should receive an acknowledgement within eight weeks.
Under the current regulations set by the FCA, a final response is not required until after December 4, 2025. However, as the FCA is currently considering a compensation scheme, this deadline may be extended.
If customers are dissatisfied with the response from their provider, they can escalate their complaint to the Financial Ombudsman Service, the FCA added.
The authority plans to propose rules on how lenders should “consistently, efficiently and fairly” determine whether someone is entitled to compensation and the amount owed. It will monitor firms’ compliance with these rules and take action if necessary.
Nikhil Rathi, chief executive of the FCA, said: “It is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated. We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal.
“Our aim is a compensation scheme that’s fair and easy to participate in, so there’s no need to use a claims management company or law firm. If you do, it will cost you a significant chunk of any money you get.
“It will take time to establish a scheme but we hope to start getting people any money they are owed next year.”