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Millions of people who were quietly ripped off when they bought a car on finance are therefore finally going to get some money back: £830 on average. The total bill for the industry is £7.5 billion.
Let’s recap what actually happened here: When you walked into a car dealership and signed on the dotted line for a finance deal, your dealer or broker was often secretly setting your interest rate higher than necessary, not because that rate was fair, but because the more interest you paid, the more commission they pocketed.
You were never told. You never had the chance to push back or shop around. You just paid.
That is not a technical breach of some obscure financial regulation; it’s being taken for a ride, quite literally, and amazingly, it went on for nearly two decades.
So yes, the fact that there is now a formal compensation scheme, with legally binding timelines, a dedicated FCA supervisory team and a minimum interest rate on payouts, is genuinely welcome. I will go one step further and say this is the regulator doing its job.
But here’s where I’d pump the brakes. The FCA has tightened the eligibility criteria compared to its original proposals. Fewer people will qualify than was first suggested, and while the average payout has gone up to £830, that figure masks an enormous range. Many people will receive considerably less, and in around one in three cases, compensation will be capped to ensure nobody is put in a “better position” than if they had been treated fairly. Better position? You mean like knowing what you were actually paying for? That’s not a windfall. That’s the bare minimum.
There is also the timeline to reckon with. Lenders have until the end of June 2026 to start processing complaints for more recent agreements, and until the end of August for older ones. After that, they get another three months to tell you whether you are owed anything. If you haven’t complained and you are owed money, your lender has until the end of 2026, or even February 2027 for older agreements, to contact you. That is a long time for people who are, right now, struggling with rising household bills.
The FCA’s chief executive says payouts “should not be delayed any longer.” I totally agree. So why do lenders still have months of runway before a single penny changes hands?
Then there is the claims management company problem. Firms have been circling this scandal like sharks since it broke, signing people up for a cut of their compensation, sometimes over 30% of whatever they receive.
The FCA has now launched a taskforce with the SRA and others to tackle the worst abusers, and that is to be welcomed. But the honest message for consumers is this: you do not need a claims management company. The scheme is free. You can complain directly to your lender and, if you are unhappy, go to the Financial Ombudsman. Anyone telling you otherwise is trying to take a slice of money that belongs to you.
The deepest frustration, though, is this. The FCA has known about discretionary commission arrangements for years. The ban on the most egregious form of this practice came in 2021. The review, the court cases, the Supreme Court proceedings, all of this could have been avoided with earlier, more aggressive oversight of a lending market that was, frankly, a Wild West when it came to how commissions were structured and disclosed.
The people who took out car finance deals between 2007 and 2024, they were not financial sophisticates. They were ordinary people trying to get to work, take their kids to school, live their lives. They deserved better from the firms that lent them money and from the regulator whose job it was to make sure those firms behaved properly.
So yes, £7.5 billion is a significant number. The scheme is better than no scheme and for millions of people, a few hundred pounds coming back through the door this year will make a real difference.
But let’s not mistake this for justice. This is a regulator cleaning up a mess that, with proper oversight, should never have been allowed to happen in the first place.
The compensation is welcome. The accountability still has a long way to go.
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Dean Dunham KC presents LBC’s legal hour every Sunday from 8pm to 9pm.
LBC Opinion provides a platform for diverse opinions on current affairs and matters of public interest.
The views expressed are those of the authors and do not necessarily reflect the official LBC position.
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