Covering approximately 12 million arrangements dated between 2007 and 2024, the FCA car finance redress scheme is one of the largest consumer redress exercises ever undertaken in the UK. So unsurprisingly, one of the questions we’re most frequently asked is “how much compensation could I receive?”
The short answer is that compensation will vary significantly from case to case. The FCA has indicated that the average payout is expected to be around £830 per agreement, but the amount an individual receives will depend on:
- The amount you borrowed
- The interest rate applied
- The commission arrangement between your lender and broker
- The date you entered into the agreement
- The extent to which you paid more than you should have
Let’s break it down.
Which car finance agreements are eligible?
Not every car finance agreement will qualify for compensation. The FCA has made clear that the scheme is designed to compensate consumers whose agreements involved commission arrangements or lender-broker relationships that may have resulted in unfair outcomes. We’ve broken these down into 3 categories:
- Discretionary commission arrangements which allowed brokers or dealers to increase the interest rate charged to a customer. The FCA found that this created a conflict of interest because customers were often unaware that the broker could benefit by influencing the cost of borrowing.
- Agreements involving exceptionally high commission payments – these are arrangements where commission represented at least 39% of the total cost of credit and 10% of the loan amount.
- Undisclosed contractual arrangements between brokers and lenders such as those that gave a lender exclusive rights or rights of first refusal over business generated by a broker.
Ultimately, not all commission structures are treated in the same way. The distinction between discretionary and fixed commission arrangements remains a key consideration.
How will car finance compensation be calculated?
In the most serious cases, the FCA has indicated that people will recoup all their commission plus interest. However, it has stipulated that this will only impact a small number of agreements. For most customers, car finance compensation will be calculated based on the average of the commission paid and the FCA’s estimate of the financial loss caused by the arrangement.
The estimated loss element is calculated using a percentage discount of the interest rate that was charged. The FCA has set this at:
- 17% for agreements from April 2014
- 21% for agreements before April 2014
Additional interest is then applied to compensate consumers for being deprived of money that they shouldn’t have paid. This is calculated using the annual average Bank of England base rate plus 1%, subject to a minimum of 3% in any year.
The FCA has also introduced several caps and safeguards to ensure compensation remains proportionate. After compensation has been calculated, it will be checked against 3 limits:
- 90% of the commission paid, plus interest
- The cost of credit after applying a market-based adjustment
- The actual cost of credit paid under the agreement
If the calculated compensation exceeds any of these limits, the payment will be reduced.
The FCA has made clear that compensation won’t be available in every case. For example, if your interest rate was within the lowest 5% of rates available at the time (excluding 0% APR agreements), you won’t qualify for redress.
Why does compensation vary so much?
Ultimately, because of the number of variables involved in every individual case. These include:
- Size of the agreement
- Commission structure
- Interest rate charged
- Length of the agreement
- The agreement date
As a result, it’s difficult to predict the value of any individual claim without first reviewing the documentation and the circumstances surrounding the agreement. While the FCA expects the average payout to be around £830, some customers may receive less, while others could recover significantly more.
How will the legal challenges to the FCA scheme impact compensation?
Although the FCA formally confirmed the redress scheme in March 2026, 3 lenders and a consumer group are challenging aspects of it. These challenges will be heard by a judge at the Upper Tribunal later this year. Nonetheless, the FCA has made clear that it intends to defend the scheme ‘robustly’ and remains committed to ensuring that eligible consumers receive compensation.
The legal challenges mean that it’s likely that compensation payments via the scheme won’t begin until 2027. However, the FCA has indicated that some lenders are exploring ways to make settlement offers and pay compensation to affected consumers, despite the uncertainty of the legal challenges.
For consumers, the key point is that the existence of ongoing legal challenges does not mean compensation will not be paid.
If you haven’t complained yet, don’t wait
If you think you might have been mis-sold car finance, don’t wait to make a complaint. By doing it now, you’ll ensure that your position is recorded and that your agreement is reviewed if it falls within the scope of the scheme. With just over 12 million agreements potentially affected and average compensation expected to be around £830 per agreement, you could be entitled to a meaningful payment.
There’s no requirement to use a solicitor to make a complaint about your car finance arrangement. You can contact your lender directly. However, some people find that legal support is beneficial. From talking you through eligibility to helping gather the right documents and negotiating with lenders on your behalf, the experienced solicitors at Harrington Sinclair Law are there to help you at every stage of the process.
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