Image source, ITN

Speaking after the Financial Conduct Authority (FCA)'s announcement, its CEO Nikhil Rathi says millions of people will receive their compensation in 2026.

He says it will put £7.5 billion "into people's pockets", with 12.1 million agreements eligible for compensation and the average payment being £829 per agreement.

The scheme is the "quickest, fairest, most cost effective way" for consumers to get compensation, Rathi says, adding it is "not especially likely" that consumers could get more compensation if they were to take their claims to court.

Those who have already complained will get their payments sooner, he says, encouraging eligible consumers to lodge their complaints now and advising that this does not require using a law firm or claims management company.

Kevin Peachey
Cost of living correspondent

Millions of drivers who were mis-sold car finance agreements should receive compensation this year, under plans by the regulator.

The Financial Conduct Authority's (FCA's) final plans should see most of the remainder by the end of 2027. After tightening criteria following consultation, some 12 million agreements will be considered unfair and due compensation. Payouts will average £829, bringing the total cost to lenders to £9.1bn.

The vast majority of new cars, and many second-hand ones, are bought with finance agreements.

Image source, Getty Images

In 2021, the FCA banned deals where car dealers received commission from lenders, based on the interest rate charged to the customer. These were known as discretionary commission arrangements (DCAs) and were often not disclosed.

The FCA has said this provided an incentive for a buyer to be charged higher interest rates than necessary, leaving them paying too much.

The regulator's central compensation scheme allows people to complain and potentially receive compensation for mis-sold deals, without the need for a lawyer or to go through the courts. Some may still decide to take a legal route.

The FCA scheme could still be challenged by lenders and lawyers. Major lenders have set aside tens of millions of pounds to cover the cost of compensation.

More now from the Financial Conduct Authority's announcement.

It says that courts have found that firms "broke the law by failing to disclose important information to customers" and that an "industry-wide scheme is the quickest and most cost effective way to deliver fair compensation".

It continues: "Our final approach is fair for consumers and proportionate for firms. We have tightened eligibility so only those treated unfairly receive compensation.

"We have adjusted how compensation is calculated to better reflect greater loss between 2007-2014."

It adds that firms are expected to pay out around £7.5 billion, which is down from £8.2 billion at consultation.

Millions of motorists that were mis-sold car finance will be eligible for compensation, the Financial Conduct Authority (FCA) has announced.

Our teams are currently working through the FCA's announcement, stick with us and we'll bring you further updates shortly.

The industry is expected to cover the full costs of any compensation scheme, including any administrative costs.

Lenders - including some of the UK's biggest banks and specialist motor finance firms - have already set aside more than £3bn for potential payouts.

A few banks have announced they have raised their provisions, and have suggested there are risks to future lending from costs associated with compensation. Evidence for such a claim is unclear.

The Financial Conduct Authority (FCA) expects average payouts of £700 per mis-sold agreement.

This is lower than its previous estimate, which suggested compensation payments of less than £950 per deal.

It means the total cost of the redress is likely to be at the bottom end of its estimate - about £8.2bn.

The director of the body that represents the lending industry said it thought the FCA was "overcompensating".

"We don't recognise losses on that scale," said Adrian Dally from the Finance and Leasing Association, adding that the number of people the regulator said lost out "seems implausibly high".

We're expecting a statement from the Financial Conduct Authority (FCA) on its decision about a payout programme for 14 million motor finance arrangements shortly.

We'll let you know what it says as soon as we have it and will bring you analysis and reaction.

A ruling by the UK's highest court in August 2025 found in favour of the finance companies in two of the cases under consideration, which narrowed the scope of the number of people who can claim compensation.

The decision reversed earlier court rulings that had opened the possibility of widespread compensation claims from motorists on a similar scale to the PPI mis-selling scandal.

However, it upheld the test case of Marcus Johnson, who bought his first car - a Suzuki Swift - in 2017, meaning many drivers who took out a certain type of finance deal could still be in line for payouts.

Image source, Marcus Johnson

He was not told that the car dealership was being paid 25% commission, which was added on to the amount he had to pay back.

"I signed a few documents and then drove away in the car," he told the BBC.

Marcus Johnson said he had no option but to use finance when he bought the car, describing it as "heartbreaking" to find out so much extra money had been taken.

• Read more on last year's Supreme Court ruling in our story

The vast majority of new cars, and many second-hand ones, are bought with finance agreements.

About two million new and used cars are bought each year under motor finance, or roughly nine in 10, according to the Financial Conduct Authority (FCA).

The FCA has previously said payouts could result from 14 million motor finance agreements taken out between April 2007 and November 2024, which amounts to about 44% of the total number during the period.

However, a ruling from the Supreme Court - the UK's highest court - from August last year reduced the scope of compensation when it ruled in favour of finance companies in two out of the three crucial test cases it considered. More on that ruling in our next post.

Kevin Peachey
Cost of living correspondent

Michael Waller, from Bexley, bought two cars on finance a decade or more ago.

“I bought them basically for my job, which was as a salesman. I went all over the country doing tens of thousands of miles in both of them," he tells the BBC.

“Years on I’ve realised that, in both cases, I’ve been hoodwinked.”

He no longer had the paperwork, so made a claim through Courmacs Legal - a law firm representing more than a million drivers.

Michael Waller argued that the principle, rather than the money, meant he wanted to take his case through the courts rather than using the Financial Conduct Authority scheme.

Image source, Getty Images

The payout details that we'll hear about today relate to the commission arrangements between lenders and dealers, unfair contracts and inaccurate information given to car buyers.

Finance agreements where car dealers received commission from lenders, which was based on the interest rate charged to the customer, were banned by the Financial Conduct Authority (FCA) in 2021.

Such deals were known as discretionary commission arrangements (DCAs) and were often not disclosed to buyers.

The FCA has said these arrangements functioned as an incentive for buyers to be charged higher interest rates than necessary, leaving them paying too much.

Image source, PA Media

The Financial Conduct Authority (FCA) has said the average payout for drivers under the scheme will be about £700, with the total cost potentially totally more than £8bn.

Exact amounts will depend on the degree of harm the consumer suffered, with a previous estimate from the authority estimating payments of less than £950 per deal.

Kevin Peachey
Cost of living correspondent

Millions of car loans were mis-sold – some nearly 20 years ago.

Discretionary commission arrangements between lenders and dealers that left drivers paying too much were banned in 2021.

But it has been a long and winding road for drivers hoping for compensation for these failures.

Now, after plenty of back and forth – and rulings at the highest court in the land – the financial regulator is unveiling its final redress plan.

It would like it to be relatively quick and simple, having learnt the lessons from the UK’s biggest financial mis-selling scandal – PPI.

But the regulator could still face challenges to its scheme, from lenders and lawyers. Drivers could still shun it to take their cases to the courts – hoping for a bigger payout.

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Image source, Getty Images

The vast majority of new cars, and many second-hand ones, are bought with finance agreements.

About two million are sold this way each year, with customers paying an initial deposit, then a monthly fee with interest for the vehicle.

The car loan scandal payouts row being addressed in our coverage today comes after the City regulator, the Financial Conduct Authority (FCA), banned deals in which the dealer received a commission from the lender, based on the interest rate charged to the customer.

These were known as discretionary commission arrangements (DCAs).

The FCA said this provided an incentive for a buyer to be charged a higher-than-necessary interest rate, leaving them paying too much.

Jack Burgess
Live page editor

Millions of drivers are about to find out how they can claim compensation for mis-sold car finance schemes.

The regulator, the Financial Conduct Authority (FCA), will shortly publish its final decision on a payout programme for 14 million motor finance arrangements.

The average compensation payment is expected to be about £700 on a number of deals made between April 2007 and November 2024.

The FCA is set to outline how this scheme will work and we'll be examining the details on this page.