Compensation payouts are due on around 12.1 million unfair motor finance deals, at an average of £829 each, the financial watchdog has said as it unveiled the final plans for its redress scheme.
Motorists are expected to get a higher payout than the £700 estimated under previous proposals by the Financial Conduct Authority (FCA).
But the final scheme will mean around two million fewer deals are eligible for compensation.
Millions of car finance customers will get payouts this year as we go ahead with our compensation scheme.
— Financial Conduct Authority (@TheFCA) March 30, 2026
We’ve listened to feedback to make sure the scheme is fair for consumers and proportionate for firms.https://t.co/5bDbURjVFd#CarFinance #MotorFinance pic.twitter.com/uIpPPxuysu
The regulator is expecting the total amount of redress paid under its scheme to be about £7.5 billion, lower than the previous £8.2 billion estimate, and based on about 75% of eligible consumers making a claim.
It thinks millions of claims will be paid out this year, and the vast majority settled by the end of 2027.
FCA chief executive Nikhil Rathi 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.”
The FCA published the final details of its long-awaited redress scheme for people who were treated unfairly when they took out a motor finance agreement.
Most of the car finance deals covered involve so-called discretionary commission arrangements (DCAs), which were banned in 2021.
This refers to arrangements whereby brokers, including car dealers, were able to increase interest rates on car loans so they could get more commission.
The FCA said this led to unfairness for customers who were not properly informed about the arrangement and therefore did not have the opportunity to negotiate or find themselves a better deal.
People who were not told about a deal involving high commission or a contractual tie to a firm are also eligible for compensation.
The programme covers agreements taken out between April 6 2007 and November 1 2024.
It has made changes to the format after receiving more than 1,000 responses to a consultation, including from motor finance lenders, consumer groups, carmakers and industry bodies.
The initial proposals drew criticism from both sides, with lenders and car finance providers raising concerns that the level of redress was too high and did not accurately reflect what customers lost, while consumer groups and some MPs argued that motorists would be short-changed under the plans.
The feedback has resulted in it tightening the eligibility criteria so only those who were treated unfairly will get compensation, according to the FCA.
Car finance deals involving minimal commission – £120 or less for agreements before April 1 2014, and £150 or less for after that date – are considered to be fair and are not eligible for compensation.
The FCA expects around a third of cases to be capped to ensure consumers will not be paid too much.
The changes bring the estimated number of eligible agreements down to 12.1 million, from the 14.2 million estimated under the original proposals.
Lenders can start making payments immediately, and people who have already complained are likely to get paid first, although the FCA thinks it will take a while for them to digest the rules and get moving.
Rachael Jones, director of automotive finance for Autotrader, said the scheme “strikes the right balance between ensuring robust protection and transparency for consumers, while underpinning the stability of an automotive sector that contributes billions to the UK economy every year”.
James Daley, managing director of consumer group Fairer Finance, said: “It’s encouraging to see the FCA standing its ground and pushing ahead with a redress scheme that will benefit millions of consumers.
“Lenders have been lobbying hard to get the compensation bill down and, while the FCA has made some minor amendments in favour of the industry, most of the original proposal remains in place.”
Alex Neill, co-founder of consumer rights group Consumer Voice, said: “The FCA has narrowed eligibility and reduced the overall bill for lenders, raising real concerns that many people will still be undercompensated.
“Millions of people were overcharged, and our research shows some were pushed into real financial difficulty.
“This was the regulator’s chance to put that right, but it instead appears to have let lenders off the hook.”
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