The Financial Conduct Authority has announced that 14 million customers could be due an average payout of £700 for mis-sold car finance agreements – here’s everything you need to know
A whopping 44 percent of car leasing agreements sold between April 2007 and November 2024 might have been mis-sold, the Financial Conduct Authority (FCA) has announced.
The vast majority of people buy their vehicles through leasing agreements, which sees a customer pay an up-front deposit and then agree to pay a monthly fee with interest.
But the FCA has said that during the relevant time period, “Motor finance companies broke laws and regulations in force at the time by failing to disclose important information.
“This led to unfairness, with consumers denied the chance to negotiate or find a better deal and, in some instances, paying more for their loan.”
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This means that lenders could be due to payout £8.2 billion – some estimates put it up to £11 billion – in a major redress scheme proposed by the FCA that will see customers receive a typical compensation payment of £700.
The largest scheme of its kind since the PPI scandal, financial expert Martin Lewis has pointed out that it also looks to be much easier than previous ways of claiming compensation.
“Of the 32 million car finance agreements in that time,” Lewis explained in a video posted to his social media channel, “14 million were likely mis-sold”.
Here’s everything you need to know about making a claim.
Who is eligible for the compensation scheme?
Anyone who was mis-sold a car leasing agreement between April 2007 and November 2024 can apply for compensation.
These mis-sold Hire Purchase (HP) or Personal Contract Purchase (PCP) agreements come under three categories. Firstly, those with a Discretionary Commission Arrangement (DCA), a practice that was banned by the FCA in 2021. This saw dealers receive undisclosed commission from lenders based on the amount of interest a customer agreed to, which meant that many people overpaid for their leased car.
Secondly, some customers had unfair contracts because of exclusive rights given to particular lenders, which saw people looking to buy a leased car not given the proper or accurate information about the best deals out there.
Finally, in some cases, the commission rates were so high for the dealers – 35 percent of the credit and 10 percent of the loan – that this has also been deemed an unfair contract by the FCA, and is estimated to impact about 2.9 million people.
What does this car-finance announcment mean?
“Many motor finance lenders did not comply with the law or the rules. Now we have legal clarity,” explained Nikhil Rathi, chief executive of the FCA, “it’s time their customers get fair compensation. Our scheme aims to be simple for people to use and lenders to implement.”
The proposed compensation scheme will be free for anyone who might be eligible, and “cost-effective for firms”. The FCA has said it wants to avoid each and every compensation case having to go through the Financial Ombudsman Service, or the courts, because this would be an expensive process for both sides, and would likely present “lengthy delays and uncertain outcomes for all involved.”
However, this is all still just a proposal, and the FCA has opened a consultation for feedback on whether it is the right approach, which means how the scheme will look is not yet totally definitive.
The consultation will end in November, and Martin Lewis believes that it is not likely to change in format that much before it goes live, likely early next year.
Do I have to use the free compensation scheme?
No-one will be forced to use the proposed free scheme. People will also still be free to go to court rather than use a compensation scheme once it has been agreed, if they want to.
Outcomes will be more uncertain with this approach – customers could get even more than the typical £700 compensation the FCA has estimated, but they also could be awarded less: it would totally depend on the specifics of their case.
“The true measure of success will be whether it delivers meaningful compensation that reflects the real financial harm suffered by consumers,” explained lawyer David Bottis from a firm that is representing some affected consumers to the BBC.
“The average payout figure of £700 per agreement raises serious questions about whether the scale of redress will match the severity of wrongdoing.”
Another lawyer who represented an affected driver in a case at the Supreme Court called the compensation scheme plans “watered down” and said that, in his view, it was an example of drivers being “treated unfairly for a second time”.
While no-one is obliged to use the compensation scheme once it is set up, it also means there is no need to pay for a lawyer or claims management firm. The FCA is warned that doing so could see a chunk of your compensation given away to the middlemen.
If someone has already signed up to a claim management service for mis-sold HP or PCP agreements, they might be subject to an exit fee if they decide to go through the free scheme instead, but the FCA has warned these companies that they expect the fees to be reasonable and not ‘hold their customers to ransom’.
When would I receive a compensation payout?
The FCA has said that if the scheme got up and running early in 2026 and it would hope payouts would quickly follow.
Some four million car leasing deals have already seen complaints lodged and are currently on hold. Administration difficulties, like changed contact details, could mean that the process takes longer for some people if their lender cannot get in touch with them.
Complaining to lenders as soon as possible is key to getting compensation quickly if you might be eligible, the FCA has explained.
Anyone who does not complain proactively should be contacted by their lender within six months of the scheme launching, and then the consumer will have a further six months from that point of contact to decide whether to have the specifics of their case looked over.
If you don’t hear from your lender due to inaccurate contact details, you will have 12 months to opt in to the scheme yourself from when it begins.
How to take part in the free car finance compensation scheme
Taking part looks to be a very simple procedure. The FCA has a template letter on its website that drivers can use if they believe they have been affected by the car finance scandal.
Drivers should then submit their own complaint on the FCA’s website if they believe their car, motorbike, or van was mis-sold to them, which the Supreme Court has found to be unlawful, and within the time period it was “very likely” to have occurred.
Once the compensation scheme is launched, lenders will then contact drivers for next steps, and if they do not hear back from the person who has complained within one month, they will review the case.