Everything You Need to Know About the FCA's New Car Finance Compensation Scheme.
The Financial Conduct Authority (FCA) recently announced a new compensation scheme aimed at ensuring consumers who were mis-sold car finance due to unfair commission structures can get compensation. Here are the key points:
Core Purpose of the Scheme
- Set up by the Financial Conduct Authority (FCA)
- Covers mis-sold car finance where lenders or dealers used hidden or unfair commission arrangements
- Designed to avoid millions of individual court claims and provide standardised payouts
Who is Eligible
- Consumers with motor finance agreements from:
- 6 April 2007 to 1 November 2024
- Must involve unfair or undisclosed commission structures (e.g. dealers increasing interest to earn more commission)
- Some exclusions:
- Very low or 0% interest deals
- Agreements not considered “unfair” under FCA criteria
- About 12.1 million agreements are now in scope (reduced from earlier estimates)
How Compensation is Calculated
- Refund includes:
- Commission paid (or part of it)
- Plus interest adjustment
- FCA estimate:
- Around £829 to £830 average payout per agreement
- Interest:
- At least around 3% per year added
- Total scheme size: roughly £7.5 billion
Structure of the Scheme
- Split into two time periods:
- 2007 to 2014
- 2014 to 2024
- This split is designed to deal with legal differences and reduce disputes.
How and When Consumers Get Paid
- Scheme starts: Mid-2026 (implementation phase)
- Most payments:
- Begin late 2026
- Completed by 2027
- Process:
- Lenders must:
- Identify affected customers
- Contact them directly (you may not need to claim)
- If consumers are not contacted:
- They can still submit a claim before the deadline
Key Deadlines
- Firms must prepare systems by mid-2026
- Claim/participation deadlines extend into 2027
Important Rules and Conditions
- Consumers do NOT need a claims company
- The FCA warns that claims companies can take up to 30–36% of a payout
- The scheme is designed to be:
- Automatic where possible
- Faster and cheaper than court action
Other Notable Terms and Changes
- Scope reduced (fewer eligible loans than initially proposed)
- Average payout increased slightly
- FCA aims to avoid mass litigation and speed up compensation
- Some consumers may still pursue separate legal claims if they think payouts are too low
Simple Takeaway
- Covers car finance deals (2007–2024) with unfair commissions
- Average payout: Around £830 per agreement
- Mostly automatic payments via lenders from 2026 to 2027
- No need to use claims companies
Comment
The FCA’s scheme explicitly encourages consumers to avoid litigation and claims management companies, which could mean that solicitors lose potential clients. Some lawyers believe consumers should still have the option to pursue claims through the courts, especially if they feel the compensation scheme doesn’t fully meet their needs.
Here at Box Legal, we can arrange After the Event Insurance for financial mis-selling claims. If you're representing claimants in car finance claims, do get in touch to find out more about our Claimsafe After the Event Insurance.
