Car finance scandal: Average payouts of £700 per claim under compensation plans

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The regulator’s plans for compensating victims of car finance mis-selling have raised concerns about the amount of compensation they may receive. The Financial Conduct Authority (FCA) predicts that approximately 14 million motor finance agreements made between April 2007 and November 2024 could lead to payouts totaling £8.2 billion. The average compensation per agreement was initially estimated at less than £950, but the FCA now believes it will be around £700 per agreement. The payouts are intended to address commission arrangements between lenders and dealers, unfair contracts, and misinformation provided to car buyers.

Nikhil Rathi, chief executive of the FCA, emphasized the importance of fair compensation for customers affected by the mis-selling scandal. Acknowledging the complexity of the issue, Rathi recognized that not everyone will be fully satisfied with the compensation scheme. The FCA estimates that 44% of all motor finance agreements made since 2007 will be eligible for payouts. However, a ruling by the Supreme Court in August has narrowed the scope of potential cases, affecting the number of eligible claimants.

Many car buyers enter into finance agreements when purchasing new or used vehicles, with approximately two million such agreements made annually in the UK. A ban on discretionary commission arrangements (DCAs) in 2021 highlighted the risks of undisclosed dealership commissions that could lead to overpayment by customers. The FCA proposed a compensation scheme to address these unfair practices, with lenders expected to contact affected customers. Consumers can choose to participate in the scheme or pursue legal action independently, with implications on the amount of compensation they may receive. Both consumer rights groups and lender associations have expressed contrasting views on the proposed scheme’s effectiveness and potential costs

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