The UK Financial Conduct Authority (FCA) has given official sanction to what is arguably one of the largest consumer redress schemes seen by the industry in living memory, targeting the systemic mis-selling of motor finance agreements.

As the estimated average recompense is now believed to be a staggering £829 per agreement, the extent of the problem and the number of drivers affected can no longer be ignored.

For the consumer, this latest announcement represents both an opportunity and a wake-up call. Many drivers who have used car finance in the last 20 years may have unwittingly been overcharged as a result of the practice of lenders paying hidden incentives to dealers, disproportionately boosting interest rates for certain lender partners.

Understanding the FCA’s Redress Scheme

The FAs inquiry into the motor finance sector flagged widespread abuses in the sector, most of them related to the scandal of lenders and car dealers not sharing commission payments and instead setting them in a way that rewarded brokers for charging cars higher interest rates than they would otherwise need to pay on car finance.

Redress would extend to agreements taken out between April 2007 and November 2024. Some 12m agreements could qualify, with the total bill forecast to reach about £7.5bn.

Payouts are expected to begin in 2026, with most complaints processed by 2027.

Why So Many Agreements Were Mis-Sold

Discretionary commission arrangements (DCAs) are the problem, which in the majority of cases saw brokers and dealers increase the interest rate. This was ostensibly in return for them getting more commission paid, all without making clear to the person buying the cost of this.

In many cases, they were not told:

• A commission was payable

• The commission was higher if the interest rate was increased

• Other dealers may have been prepared to undercut the offer

The FCA has also flagged up cases where the credit commission paid was simply far too high, and "contractual arrangements" that simply tied the person entering into the agreement into a situation where their choice was limited, and this was not spelt out.

The upshot was that many motorists paid over the odds for their finance, and often significantly so.

What the £829 Average Compensation Really Means

While the headline figure of £829 gives a good starting point, the actual amount you will receive will depend on personal circumstances. Some, though not all, will receive less. Some, however, particularly those who were charged extremely high commissions, will receive a lot more.

The redress paid will usually be equal to:

• The difference between the interest actually paid and the interest that would have been paid under a properly redressed contract

• The amount of the hidden commission

• Additional interest on the sums owed

Essentially, the aim of the redress is to put you back into the position you would have been in if you had had a proper, unfair relationship with the lender.

Who Could Be Eligible?

You may be due compensation if you took out vehicle finance for a car, van or motorbike in the specified period and weren’t told about the brokers’ commission in full.

Signs of you being mis-sold may include:

  • The amount of commission earned by the broker wasn’t made clear to you
  • You were given only one product option, with details of anything else you might have been able to get not discussed
  • You felt you had to accept the deal
  • You were charged a higher rate than you thought you should have been, but weren’t given a clear explanation

Note: even if your agreement doesn’t quite fit into the FCA definitions, you could still have cause to complain.

The Claims Process: What Happens Next?

The FCA has set up its own online eligibility tool for its customers, and for all customers, it is encouraging lenders to contact any eligible customers directly. This "proactive customer contact" has been requested to start before the end of 2022.

With the complaints process paused until the investigation ended, cases had stagnated, but this should help them progress more smoothly. Complaints will be considered valid from May 2026.

You can put in a claim yourself, but it can be complicated and tricky, especially when working out how much redress you should get. You need to assess whether the agreement was actually unaffordable and the redress decision isn’t the same as a compensation decision, for example.

How a Mis-Sold Expert Can Help

Looking into historical finance agreements is something that many people find daunting, particularly where copies of paperwork are missing or where the person involved doesn’t have a very good understanding of the products they were sold.

This is where a specialist claims management firm like https://www.mis-soldexpert.co.uk can step in to assist.

Mis-Sold Expert Can Provide:

  • A professional analysis of historical finance agreements
  • Assessment of whether mis-selling warning signs are present
  • Help with making and managing claims processes
  • Support throughout any settlement process

By using their in-depth knowledge of the market and the experience built up over the years, their aim is to ensure that any claim is valued and presented fully and accurately to reduce the chances of under-settlement. In addition, their expertise can increase the chances of a claim not being rejected outright.

Why Acting Now Matters

While compensation likely won’t be available for several years, there’s still an advantage to “getting in early”. The sooner you lodge your claim, the sooner it will be processed. If you don’t put a claim in for a few years, then you’ll be a few years behind everyone else.

With so many unpaid accounts getting a second look, there’s going to be delays. The longer you wait, the more there will be. If you don’t take action now, you may find that when you finally do try to claim your money, there’s a massive queue in front of you.