New update reveals when millions of UK drivers will receive £700 payout

Millions of UK drivers who were overcharged for car finance could soon receive compensation, after a new update from the Financial Conduct Authority (FCA).

This week, the financial regulator confirmed that final rules for the industry-wide compensation scheme will be announced by the end of March 2026, paving the way for lenders to begin assessing and paying out on claims.

The scheme follows a Supreme Court ruling on car finance agreements sold before January 2021, when a controversial practice known as discretionary commission arrangements (DCAs) was banned.

DCAs allowed car dealers or brokers to increase the interest rate on a finance deal in order to earn more commission from lenders.

According to the FCA, this created a clear incentive for customers to be charged higher interest than they otherwise would have been, increasing the total cost of their finance agreement.

Although the exact number of people affected is unknown, up to 14 million Brits on unfair motor finance deals are expected to receive compensation averaging roughly £700 each.

Around two million vehicles a year are bought using finance in the UK, with the regulator estimating 99% of sales prior to the ban involved some form of commission and about 40% included DCAs specifically.

Because these arrangements were not always properly disclosed, the FCA believes some lenders breached consumer law or regulatory rules.

And now, over two years after the investigation began in January 2024, redress is on the horizon for those who were mis-sold.

Who’s eligible for compensation?

You could be eligible for compensation if you:

• Took out motor finance before January 28, 2021
• Used Personal Contract Purchase (PCP) or Hire Purchase (HP)
• Bought the vehicle for personal use

In addition, at least one of these commission arrangements must have not been disclosed by your broker:

• A DCA allowing a broker to adjust interest rates
• A high commission structure (35% of the total cost of credit and 10% of the loan)
• A contractual arrangement or tie between the lender and broker, which provided exclusive or near-exclusive rights to lenders to provide credit

While the FCA says there may be ‘rare criteria’ where lenders can show no unfairness occurred, even if disclosure was missing, lenders must presume they didn’t give borrowers enough information unless they have the evidence to prove otherwise.

Customers with agreements that only had undisclosed commissions (rather than DCAs) won’t receive compensation automatically, but if you think you weren’t told about commission and may have paid too much as a result, you can still complain.

How much compensation will drivers receive?

The FCA estimates the redress scheme will cover around 14 million motor finance agreements made between April 2007 and November 2024.

Based on current projections, the average payout will be around £700 per person, although drivers who had multiple finance agreements during the period could receive several payments.

With around 85% of eligible consumers expected to take part, the compensation paid by lenders could amount to £8.2 billion. If uptake reaches 100% however, firms could face up to £9.7 billion in total.

‘Many motor finance lenders did not comply with the law or the rules,’ commented Nikhil Rathi, FCA chief executive. ‘Now we have legal clarity, it’s time their customers get fair compensation. Our scheme aims to be simple for people to use and lenders to implement.’

When will compensation be paid out?

In an update published on March 4, the FCA confirmed lenders will be given a three-month implementation period once the scheme is finalised, while for older agreements, firms may have up to five months to put systems in place.

The final rules will be published at the end of the month, but compensation payments are thought to likely begin later in 2026.

If you’re one of the four million drivers who has already complained though, you should see faster progress, as regulators have ‘streamlined’ the process to avoid delays.

This group won’t have to face the ‘opt-out’ period, with lenders required to automatically assess claims and onfirm within three months if compensation is owed. Payments can then be accepted immediately, without a cooling-off period.

Once the scheme launches for all, lenders must identify and contact eligible customers, but if you believe you were affected and haven’t yet complained, you can still contact your lender now to register a claim.

Doing this early ensures your case is already in the system when lenders begin reviewing agreements.

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