Claim sooner rather than later, experts urge, after £7.5bn car loan compensation scheme launched

Complain now to be at the front of the queue. That is the message from the City regulator and the consumer champion Martin Lewis as a scheme gets under way to pay out about £7.5bn in total to millions of motorists mis-sold car loans.
More information emerged this week about how much money the different categories of people might get and how it will all work after Monday’s announcement that an industry-wide compensation scheme for victims of the UK’s car finance scandal is definitely going ahead.
Here are five main takeaways:
Technically it’s two schemes. The plan was always for a single compensation scheme, but this week it emerged that the Financial Conduct Authority (FCA), has set up two.
Scheme 1 covers older motor finance agreements, those taken out between 6 April 2007 and 31 March 2014; scheme 2 is for more recent ones, those taken out between 1 April 2014 and 1 November 2024.
As they are broadly similar, the FCA is generally referring to them collectively as “the scheme”.
A very brief recap of the story so far: millions of people were treated unfairly when they took out motor finance to buy a new or secondhand vehicle and ended up paying more than they should have done.
It is lenders (typically banks) who are on the hook for the compensation.
The scheme, which will be free to use, covers motor finance taken out over a 17-year period during which commission was paid by the lender to whoever sold the loan – usually the dealer.
You will only get a payout if important information was not properly disclosed to you.
The vast majority of new cars and an increasing number of used vehicles are bought with motor finance – typically either a personal contract purchase (PCP) plan or a hire purchase agreement.
The average payout has gone up. The FCA said in October last year it expected eligible consumers to receive an average of £695 an agreement. But tweaks mean this has increased to £829.
Most people will receive the average of the estimated financial disadvantage and the commission paid, plus interest. The formula for calculating loss depends on which scheme you are in.
In scheme 1, the average for each agreement is £734; in scheme 2, it is £881.
How much those getting a payout will receive also depends on which type of case theirs is – there are three. By far the biggest category is deals that included a “discretionary commission arrangement” (DCA) – a now-banned type of finance which allowed the dealer or broker to adjust (ie, increase) the interest rate the customer would pay to get a higher commission.
There are two other main types of case. One is where there was an arrangement that gave a lender exclusivity or ‘first dibs’ when it came to providing the credit to the individual (these are known as “contractual tie” cases).
The other involves unfairly high commission (where it was at least 39% of the total cost of the credit and 10% of the amount borrowed).
FCA documents suggest that for the DCA people, the average payout will be £810. For the second category named above, it’s £807. For the third category, involving an unfairly high commission, it’s quite a bit higher: £1,203.
Interest will be paid on compensation, based on the annual average Bank of England base rate per year plus 1%. The minimum interest people will receive is 3% in any year.
The FCA says consumers should not be put into a better position financially than they would have been in had they been treated fairly. This means that in about one in three cases, compensation will be capped (details of the formula being used are available online).
Fewer people will get compensation. The FCA previously estimated 14.2m loan agreements would be considered unfair, but on Monday it cut this to 12.1m. “We have tightened eligibility so only those treated unfairly receive compensation,” says the regulator. For example, agreements involving “minimal” commission (less than £150 or less than £120 depending on the date) will be excluded from redress.
Also, where a lender can prove there were visible links between the finance and the car manufacturer/dealer, a contractual tie alone will not trigger compensation. In other words (this is a made-up example), if you used a Volkswagen dealer and the car loan you signed up for was branded something like “Volkswagen Finance”.
Payouts could begin immediately. In theory, at least. Nikhil Rathi, the chief executive of the FCA has said : “There’s nothing stopping lenders moving tomorrow now they’ve seen the rules.”
Technically, the scheme has launched, but there will now be a short “implementation period” so lenders can get their ducks in a row. This will be up to 30 June this year for loans taken out after 1 April 2014, and up to 31 August this year for the older agreements.
The FCA says millions of people will receive compensation this year, but the complexities of the scheme mean it is hard to say exactly how many will get their cash this year and how many will have to wait until next year or the very start of 2028.
Get your complaint in now. Lenders will have three months from the end of the relevant implementation period to let people who have complained know whether they are owed compensation and how much.
The FCA says: “People who have already complained, or who complain before the end of the relevant implementation period, will be compensated sooner.”
Lewis says: “The only way to know if you were mis-sold is to complain. To know if you’ve got a complaint, you have to complain.”
The FCA says there is no need to use a claims management company (CMC) or law firm as people can complain now for free using a template letter on its website.
Lewis’s MoneySavingExpert website also has a free complaint tool and template letter. “You just put your details in, it formulates an email for you and tells you where to send it. You check it and you press send,” he says.
If you are unsure about who your car finance provider was, the FCA website includes details of a few ways that you can check.
Meanwhile, while the credit reference agency Equifax’s myEquifax app includes a free car finance checker tool to help track down and access past loan records.
Lenders will only contact people who have not complained if they are likely to be owed money. They have six months from the end of the relevant period to do so.
Anyone not contacted has until 31 August 2027 to make a claim.