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FCA announces car loan compensation scheme

City regulator plans to compensate affected drivers starting in 2026.

August 3, 2025 at 02:29 PM

Millions will share up to £18bn as FCA unveils car loan compensation scheme

Millions of drivers may receive compensation due to a car finance scandal.

FCA plans £18bn compensation for car loan scandal

The Financial Conduct Authority (FCA) has announced a significant compensation scheme for millions of drivers affected by the car finance scandal, potentially costing banks between £9bn and £18bn. The consultation for this scheme will begin shortly, aiming to compensate those harmed by discretionary commission arrangements that inflated car finance costs. As noted, the Supreme Court’s recent ruling overturned an earlier decision that could have led to compensation costs soaring to £44bn, which reflects the magnitude of the ongoing crisis. Most payouts are expected to be under £950, emphasizing the challenge facing affected consumers. Bobby Dean, a Liberal Democrat MP, called this scandal the “biggest consumer finance scandal since PPI,” pointing to the urgency for banks to improve their practices moving forward. The FCA aims to provide a fair and straightforward compensation process, excluding the need for claims management companies, which often take a share of any payout. While the FCA has set an ambitious timeline to start issuing payments next year, responses from the finance industry suggest that there may be obstacles ahead.

Key Takeaways

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The FCA will consult on a compensation scheme for drivers affected by car finance issues.

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Banks may face costs between £9bn and £18bn depending on the compensation structure.

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Most individual payouts are anticipated to be below £950.

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The Supreme Court largely sided with finance companies, limiting potential compensation.

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Sections of the finance industry warn that large payouts could disrupt the loan market.

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Consumer trust and engagement will be crucial for the scheme's effectiveness.

"It’s clear that some firms have broken the law and our rules."

Nikhil Rathi, FCA chief executive, emphasizes the need for companies to be held accountable.

"The biggest consumer finance scandal since PPI is unfolding before us."

Bobby Dean highlights the magnitude of the car finance issue.

"We need consistency, transparency, and speed."

Martin Lewis stresses the need for the industry to respond effectively to the FCA's redress plans.

"The devil will be in the details regarding this compensation scheme."

Alex Neill warns that careful implementation is crucial.

The FCA's announcement signals a critical step in addressing widespread consumer dissatisfaction regarding car finance practices. Mismanaged commission structures harmed millions, and as the regulator consults on the compensation scheme, there remains a significant balance to strike between consumer justice and market stability. The risk of lenders pulling back on affordable loans presents a concern; the financial health of the lending landscape could impact future accessibility for car buyers. Consumer advocates emphasize the need for transparency and efficiency, as the complexity of the compensation process may deter engagement from those affected.

Highlights

Compensation is not just necessary; it is overdue for millions of drivers.
The car finance scandal is impacting individuals and the entire lending market.
Transparency and efficiency are vital to restoring consumer trust.
The stakes are high and the outcome affects millions of lives.

Potential backlash from the financial industry

Many in the lending sector argue that the financial implications of large compensation payouts could disrupt the availability of affordable loans, raising concerns about market stability.

The effectiveness of the FCA's scheme will depend on its ability to build consumer trust amidst a culture of skepticism.

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car finance FCA compensation consumer rights finance scandal finance consumer rights

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