FCA outlines redress for mis-sold loans
Millions of UK drivers could receive compensation after the Financial Conduct Authority confirmed that around 40% of car finance agreements taken out between April 2007 and November 2024 may have been mis-sold.
The regulator estimates that approximately 12 million people will qualify for redress under its new centralised scheme, with an average payout of £829. That figure is lower than the earlier estimate of 14 million, a revision that helped lift shares in some major lenders.
The scheme focuses primarily on discretionary commission arrangements, banned in 2021. Under these deals, dealers could earn higher commission by increasing the interest rate charged to customers. The FCA concluded this structure created incentives that left borrowers paying more than necessary.
Drivers describe drawn-out claims
Poppy Whiteside, a senior NHS data analyst from Kent, believes she is owed compensation linked to a 2018 Ford Fiesta purchase. She says her lender eventually acknowledged that a discretionary commission arrangement applied to her loan, but she was not informed at the time.
“They’ve made me jump through hoops,” she said, describing repeated requests for the same documentation. Like many UK motorists, she has routinely financed vehicles and only became aware of potential mis-selling after news coverage in 2024.
Gray Davis, who bought a Renault Megane convertible in 2008 using a hire purchase agreement, says he was encouraged to use finance in exchange for a £500 discount. He repaid the loan within three months but only later realised he may have been overcharged.
“When this came out in the news, I realised ‘that’s me,’” he said. Davis, currently out of work due to illness, described the potential payment as a “lifeline” for his family.
Who qualifies for compensation?
Under the FCA framework, compensation may apply where:
- A discretionary commission arrangement was used and not disclosed.
- A high commission structure paid at least 39% of total credit cost and 10% of the loan value to the dealer.
- Exclusive contractual ties limited consumer choice between lenders.
The regulator noted that some cases may still be judged fair even if these conditions apply, depending on individual circumstances.
Free claims route versus legal action
Borrowers can submit claims directly to lenders at no cost under the FCA’s centralised scheme. Chief executive Nikhil Rathi warned that some law firms and claims management companies may take up to 30% of any award.
Despite this, some motorists are opting for legal representation. Michael Waller from Bexley is pursuing his case through a law firm, arguing that the principle of accountability matters as much as the financial outcome. “Years on I’ve realised that in both cases I’ve been hoodwinked,” he said.
The Finance and Leasing Association criticised the scheme as overly broad, while consumer advocacy groups argued it may not go far enough. The redress plan could still face legal challenges from lenders.
For now, millions of drivers await clarity on when payments will begin and how quickly lenders will process claims under the regulator’s framework.