The Financial Conduct Authority (FCA) said it is likely to make several changes to the proposed compensation scheme after receiving more than 1,000 responses to its consultation on the plans, which also comes amid a backlash in the lending sector.
But it said a final decision has not yet been made on whether the scheme should go ahead.
If it gets the green light, it expects to give lenders a three-month implementation period to pay out redress, with up to five months for older motor finance agreements due to the “scale and complexity of the scheme and in response to feedback”.
Consumers would be told within three months of the end of the implementation period whether they are owed compensation and how much, but could then accept immediately without waiting for a final determination, according to the FCA.
The regulator also aims to streamline the process by no longer asking those who complain before the scheme starts if they wish to opt out, and will not require lenders to write to customers by recorded delivery, allowing them to contact them in other ways.
The FCA said: “If we proceed with a scheme, we are likely to make several changes.
“If we do go ahead, we expect to publish final rules in late March. The timing of publication will be outside market hours and we will confirm the date in advance.
“Even with an implementation period, streamlining the process means millions of people would receive compensation in 2026,” it added.
The FCA has been consulting on plans since it outlined a proposed compensation scheme last October that could see payouts for some 14 million unfair motor finance deals, at an average of about £700 each.
It estimated its redress scheme could cost lenders of about £11 billion once the cost of implementing the scheme and doing the work is taken into account.
Motor finance firms and lenders broke the law and FCA rules by not properly informing customers about commission paid by lenders to the car dealers that sold them the loan, the regulator has previously said.
Final decisions haven’t been made yet, but given the scale of the scheme, we’d introduce an implementation period so firms can operate it effectively.
We would also streamline the scheme, so millions of people are compensated in 2026. https://t.co/0BxYaIsWpm pic.twitter.com/ZLwIdPFhCe
— Financial Conduct Authority (@TheFCA) March 4, 2026
This meant that many motorists did not have the opportunity to negotiate or find a better deal and therefore may have paid a higher interest rate for their loan.
But the regulator’s plans have been met with significant pushback from lenders, with the likes of Santander and Lloyds Banking Group putting by significant amounts to cover the expected cost.
Santander UK’s former boss Mike Regnier last year called for the Government to step in, warning the compensation scheme plans could impact the car finance market and wider motor sector, leading to job cuts.
The FCA said the likely changes being considered for the scheme would provide a “better experience for consumers” and “help keep the cost of delivering the scheme proportionate, supporting a well-functioning market for the millions of people that rely on it”.
The FCA is advising those who believe they may have been mis-sold car loan deals with hidden commission to complain now to their finance provider, ahead of the scheme starting.
It said: “Doing so means they should get any compensation sooner.
“There is no need to use a claims management company (CMC) or law firm, and those who do may lose over 30% of any compensation.”
Richard Pinch, senior director of risk at banking and credit advisory firm Broadstone, said the FCA’s proposed implementation period was a “sensible acknowledgement” of the size and scale of the scheme.
“Firms will need time to review historic agreements, build out operational processes and ensure payments are calculated accurately, particularly where older agreements are involved, to maintain consumer confidence,” he said.