Victims of the car finance scandal will be in line for payouts worth £830 on average, as the City regulator tightened the rules of its compensation scheme to cover fewer contracts.
The Financial Conduct Authority (FCA) released the final details of its planned redress programme, saying it had narrowed the number of loan agreements eligible for payouts from 14m to 12.1m contracts.
That tweak, which covers loans agreed between 2007 and 2024, is expected to result in a higher payout for each contract, up from £700 to £830, including interest.
The scheme is intended to draw a line under the car finance scandal, in which drivers were overcharged for loans as a result of commission payments between lenders and car dealers.
With roughly 75% of eligible consumers expected to make a claim, banks will end up paying out roughly £7.5bn worth of compensation in total, the regulator said. That is down from the £8.2bn outlined in the FCA’s initial proposals, and is a far cry from the £44bn bill that some analysts had forecast could hit lenders when speculation over the scandal reached its peak last year.
The FCA’s chief executive, Nikhil Rathi, said the final terms struck a balance for borrowers and banks, with lobbyists on both sides having complained about the sums outlined in initial proposals that were put out for consultation in the final months of 2025.
“We’ve listened to feedback to make sure the scheme is fair for consumers and proportionate for firms. It will put £7.5bn back into people’s pockets,” he said. “Now we need everyone to get behind it and ensure millions get their money this year.”
Rathi fired warning shots at firms considering challenging the regulator’s scheme through the courts. “Payouts should not be delayed any longer, especially as household bills come under greater pressure,” he said. “Delivering compensation promptly also gives lenders the chance to rebuild trust and means we can draw a line under the past and support a healthy motor finance market for the future.”
Under current plans, “millions” of victims are expected to receive compensation by the end of 2026, the FCA said.
However, firms have until 5pm on 27 April to challenge the scheme and its proposed compensation bill, a move that could end up significantly delaying payouts. Individual lenders as well as the Financing and Leasing Association (FLA) lobby group have not ruled out challenging the FCA’s final proposals in court. Claims law firms have also signalled they could consider legal action.
Rathi said: “An industry-wide scheme is the most efficient way of compensating affected consumers while supporting the ongoing availability of competitively priced motor finance for millions who rely on it. Without such a scheme, the cost to lenders of dealing with complaints through the ombudsman or courts is estimated to be over £6bn higher.”
The FLA stopped short of backing the scheme, buying its members time to consider their next move. “While the FCA has clearly endeavoured to make the redress scheme more proportionate than the proposed scheme consulted on in October, it will take time for us to assess the market impact of the measures announced today,” the FLA’s chief executive, Shanika Amarasekara, said.
The claims law firm Courmacs Legal, which is urging consumers to bypass the regulator’s scheme and take claims to court, said it was a “complete failure for consumer rights” and “prioritised lender balance sheet over vulnerable motorists”. Darren Smith, managing director of Courmacs, said the FCA had “accepted a limited set of data selected by the banks themselves, which does not reflect the reality of how much consumers were ripped off. This flawed scheme allows the wrongdoers to mark their own homework and will short-change millions of car finance victims.”
The FCA and lenders have repeatedly warned consumers against using claims law firms and claims management companies, which charge fees worth up to 33% of the final payouts. The FCA scheme, meanwhile, is free to use.
Firms and investors will start digesting the terms of the scheme, which was released after stock markets closed on Monday afternoon, in hopes of avoiding large price fluctuations in the share prices of the biggest listed car loan providers, including Lloyds Banking Group, Santander, Barclays and the specialist lender Close Brothers.
Close Brothers, which is one of the most exposed lenders to the car finance scandal, said on Monday that it was “assessing the potential implications of the redress scheme on the group” and would update the market “as and when appropriate”.
The government will also be watching developments closely, having been the subject of heavy lobbying for more than a year, including by the motor finance industry. Warnings from lenders have already prompted divisive interventions by the chancellor, Rachel Reeves, who last year cautioned judges against handing large payouts to consumers. Reeves also considered overruling the supreme court, after representations claiming it had sided too closely with borrowers.
On Monday evening, Martin Lewis urged listeners on his BBC podcast to put in a complaint independently, which can be done online. “The only way to know if you were missold right now is to complain. To know if you’ve got a complaint, you have to complain. You don’t have any other way,” he said.
He added that putting in a complaint could result in a quicker payout and ensure you are counted in the mass redress scheme because, if a car finance provider does not have a copy of your agreement or if you have moved house or changed your legal name, they might not be able to contact you.