Millions Set to Receive Compensation Under FCA Motor Finance Scheme

Millions of motor finance customers are set to receive compensation this year under a major FCA scheme addressing unfair practices by firms that failed to disclose key information.

The Financial Conduct Authority (FCA) has introduced an industry-wide compensation scheme to support consumers who were not given full transparency when taking out motor finance agreements. As a result, many were unable to secure better deals and, in some cases, paid more than they should have.

Following extensive feedback from consumers, firms, manufacturers and industry bodies, the FCA has refined the scheme to ensure it is both fair to consumers and proportionate for firms.

What the Scheme Means for Consumers

The updated framework introduces tighter eligibility criteria, higher average compensation for older agreements, and a minimum compensatory interest rate of 3% per year. In some cases, payouts will be capped to ensure customers are fairly compensated without being placed in a better position than if they had originally received fair treatment.

Around 12.1 million motor finance agreements made between 2007 and 2024 are now eligible under the scheme. The average payout is expected to be approximately £830 per agreement.

The FCA estimates that around 75% of eligible consumers will submit a claim. If this level of participation is reached, total compensation paid could amount to £7.5 billion — putting significant funds back into consumers’ pockets.

Supporting Households and Rebuilding Trust

“We’ve listened to feedback to ensure the scheme is fair for consumers and proportionate for firms. It will put £7.5 billion back into people’s pockets.”

“Payouts should not be delayed any longer. Delivering compensation promptly helps households under pressure, allows lenders to rebuild trust, and supports a stronger motor finance market for the future.”

— Nikhil Rathi, Chief Executive, FCA

Why an Industry-Wide Scheme Matters

The FCA believes a coordinated, industry-wide approach is the most efficient way to deliver compensation at scale, while maintaining access to affordable motor finance for millions of consumers.

Without this scheme, the cost of resolving claims through the Financial Ombudsman Service or the courts could exceed £6 billion more, placing additional pressure on lenders and the wider financial system.

By streamlining the compensation process, the scheme not only ensures faster outcomes for consumers but also provides a clear path forward for the industry to move beyond past issues and focus on a fairer, more transparent future.