Car loan 'rip-off' victims to get £700 compensation - how to claim

Millions of drivers who were mis-sold car finance are to receive compensation of around £700, while Britain’s biggest banks are scrambling to cover billions in payouts. The Financial Conduct Authority (FCA) has said drivers who were charged inflated interest rates on car loans could be due average payouts of around £700 each, down from an earlier estimate of nearly £950.

The regulator said around 14 million loans taken out between April 2007 and November 2024 may have been affected - roughly four in ten car finance deals during that period.

For years, car dealers quietly pocketed large commissions from lenders - often based on how much interest they could persuade customers to pay. Known as “discretionary commission arrangements” (DCAs), the deals meant the higher the interest rate, the more the dealer earned - with buyers left in the dark about the hidden kickbacks.

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The FCA banned the practice in 2021, calling it a “fundamentally unfair” system that encouraged rip-offs. Now, after a Supreme Court ruling in August limited the scope of claims, the watchdog has confirmed it will go ahead with a massive redress scheme for those mis-sold loans.

Drivers are being urged not to use claims firms, but to contact their car finance provider directly if they suspect they overpaid. Full guidance on how to complain is available via the FCA website - though with billions at stake and millions of cases to process, this will be one of the biggest consumer payouts in UK history.

The scheme would cover motor finance agreements taken out between April 6 2007 and November 1 2024 where commission was payable by the lender to the broker. Those who are concerned they weren’t told key details about their motor finance arrangement – for example, about commission payments – should complain to their lender now if they haven’t done so already.

Four in 10 (41%) of those who've had motor finance agreements and know about possible compensation are unaware they needn’t use a claims management or law firm to make a claim.

However, there’s no need as people can submit their own complaint using a template letter on the FCA’s website here. The FCA warns that those who choose to use a claims manager or law firm could lose a significant amount of any compensation owed.

Once the proposed scheme goes live, lenders will contact those who have already complained. If they don’t hear back after 1 month, lenders will assume they should review the case. Those who have already complained before the scheme gets up and running are likely to receive compensation faster.

Those who haven’t complained will be contacted by their lender within 6 months of the scheme starting. People will be asked if they want to opt-in to the scheme to have their case reviewed. They’ll have 6 months to decide.

Those motor finance borrowers who don’t receive a letter – for example, because lenders no longer have their details and can’t trace them - will have a year from the scheme starting to make a claim.

They will be able to do so by making a claim to their lender directly. If consumers don’t know who their lender was, there’s information on how to check on the FCA website. The FCA will run an advertising campaign to raise awareness of the scheme.

The total cost of redress is now expected to be around £8.2 billion, at the lower end of initial estimates - though lenders are warning the bill could still rise sharply.

But Adrian Dally, director of the Finance and Leasing Association, accused the FCA of “overcompensating” motorists.

“We don’t recognise losses on that scale,” he said, adding the regulator’s figures “seem implausibly high.”

Banks and car finance firms have set aside more than £2 billion

• Lender Amount - reserved
• Lloyds £1.15bn
• Santander £295m
• Close Brothers £165m
• Northridge £143m
• FirstRand (MotoNovo) £140m
• Barclays £90m
• FCE Bank £61m
• Investec £30m
• Aldermore £18m