The UK Financial Conduct Authority (FCA) announced that compensation payouts for approximately 14 million unfair motor finance deals could begin in 2026, with an average payout of about £700 per eligible consumer.

The total cost for lenders to provide redress is estimated at around £8.2 billion, which is lower than previous projections, assuming about 85% of eligible consumers participate.

Implementation costs for the scheme are estimated at approximately £2.8 billion, bringing the total estimated expenditure to around £11 billion, a significant reduction from earlier estimates.

The scheme covers about 30 lenders, representing roughly 89% of the motor finance market, aiming to restore trust and confidence among consumers.

Lenders responsible for the majority of the market will pay the compensation, and consumers are encouraged to contact their lenders directly to claim, without needing third-party claims management firms.

The scheme addresses legal violations involving undisclosed commissions paid by lenders to car dealers, which often led to higher interest rates for consumers, with some commissions being excessively high.

The UK Supreme Court ruled that consumers could claim compensation if undisclosed commissions were excessively high or if interest rates were manipulated to increase commissions, with some practices now banned.

The FCA emphasizes a simple, free process for consumers to claim compensation, aiming to remove legal and administrative barriers and encouraging lenders to contact eligible customers within three to six months after the scheme launches.

Following a Supreme Court ruling that limited lender liability, the scheme will exclude consumers who have already received compensation, but many still may be owed due to discretionary commission arrangements.

Consumers with multiple agreements may be entitled to several payments, and many have already filed complaints, with payouts including interest based on the Bank of England base rate.

The scheme was prompted by a Supreme Court ruling that clarified legal issues around undisclosed commissions, which previously allowed firms to avoid paying compensation.

The FCA highlights that most new cars purchased in the UK are financed through loans, with about two million deals annually, involving deposits and interest payments, and many consumers affected by these practices.