Car finance deal compensation could start next year, says FCA boss

The boss of the UK’s financial watchdog has said payouts to drivers who were unfairly sold car finance deals could be made during 2026.

Nikhil Rathi, chief executive of the Financial Conduct Authority (FCA), said up to 30 million car finance deals were made between 2007 and 2020 but not all will be eligible for compensation.

The FCA is currently consulting on an industry-wide redress scheme for consumers who experienced harm.

It said some motor finance firms broke the law or its rules by not properly informing customers about commission paid by lenders to the car dealers that sold them the loan.

Mr Rathi told a group of MPs on the Treasury Committee: “During the period that we’re looking at – from 2007 through to approximately 2020 – there are around 30 million agreements” and he added that not all of those will be eligible for compensation.

He said: “One of the things that we are looking at very closely is what the scope of the scheme will be.”

He said that the FCA was looking into so-called discretionary commission arrangements (DCAs), of which there were about 14.6 million over the same period.

This refers to arrangements whereby brokers, including car dealers, were able to increase interest rates on car loans so they could get more commission.

“A very significant proportion of those agreements… we do think probably breached the law when it came to disclosure and, by extension, unfair relationships,” Mr Rathi said.

The regulatory chief said it was consulting on the scheme because there was “evidence that there have been unfair relationships between lenders and their consumers and commissions paid that were not adequately disclosed”.

He said that a “large number of consumers were not properly informed and perhaps did not get the fairest interest rate that they should have done” for a motor finance agreement.

The consultation is due to be launched by early October, Mr Rathi said, adding: “We hope that compensation, where it is due, can start to be paid next year.”

“The practices that we’re dealing with in this scheme are practices of the past, and we do want to put this behind us as soon as possible,” he stressed.

Meanwhile, the FCA boss suggested that customers do not need to use lawyers or claims management companies (CMCs) to make a complaint, and warned people about potential fraudsters exploiting the situation.

He said: “Some of the CMCs and law firms are putting out high-pressured advertising suggesting to consumers they may get more than £4,500, and numbers like that.

“We have intervened in around 400 promotions by claims management companies, asking for them to be removed or amended, since 2024.

“One hundred and seventy-one we have asked to change since the Supreme Court judgment itself.

“So we don’t agree with some of those very large estimates … we do think the average is likely to be hundreds, not thousands, of redress.”

The FCA previously estimated that most individuals would probably receive less than £950 in compensation.

It also said that the final total cost of any compensation scheme is estimated to be between £9 billion and £18 billion.

Mr Rathi told MPs that there were at least 38 motor finance firms in the UK that were likely to have to be involved in running a scheme.

The industry-wide action was announced after the Supreme Court ruled in August that lenders were not liable for hidden commission payments on car finance agreements.

But the FCA released a statement shortly after the judgment, saying it was “clear that some firms have broken the law and our rules” and that it was “fair for their customers to be compensated”.