Millions of motorists are expected to learn how to seek compensation for mis-sold car finance agreements when the financial regulator announces the final framework for payouts later today.

The Financial Conduct Authority (FCA) is set to release its decision this afternoon, outlining how a compensation scheme will operate for roughly 14 million motor finance contracts.

The protracted, multi-billion pound issue — which has reached the UK’s highest court — is anticipated to yield average payouts of around £700 for agreements signed between April 2007 and November 2024.

However, the proposed scheme could still face legal opposition from lenders and claims management firms, potentially prolonging the process for affected drivers.

The compensation centers on commission structures between lenders and dealerships, as well as unfair contract terms and misleading information provided to buyers.

Regulators have been developing a centralized redress program designed to avoid court proceedings for most claims, though some motorists may still choose litigation in pursuit of larger settlements.

Earlier estimates from the FCA indicated that 44% of motor finance agreements made during the period could qualify for compensation, with payouts exceeding £8bn. Lenders are also expected to incur an additional £3bn in administrative expenses.

A Supreme Court ruling in August narrowed the scope of eligible cases, preventing potential liabilities from escalating into tens of billions of pounds.

Most new vehicles — and a significant share of used cars — are purchased through financing arrangements.

In 2021, the FCA prohibited commission-based deals in which car dealers earned more depending on the interest rate charged to customers. These arrangements, known as discretionary commission arrangements (DCAs), were often not disclosed.

The regulator said such practices created incentives to increase borrowing costs for consumers, resulting in higher payments than necessary.

Based on court findings, the FCA has also identified other types of unfair agreements, including:

High commission arrangements - where the commission was equal to or greater than 35% of the total cost of credit and 10% of the loan
Tied arrangements that gave a lender exclusivity or a first right of refusal, without drivers being clearly informed

Industry representatives have criticized the regulator’s approach as overly broad, warning that compensation may extend beyond genuinely affected customers.

"That would result in redress being paid to millions of customers who experienced no unfair relationship, or no loss, diverting resources away from those for whom redress is genuinely due," the Finance and Leasing Association (FLA) has said.

Major financial institutions, including Lloyds — the UK’s largest banking group — have already allocated billions to cover potential payouts. Meanwhile, Close Brothers has reduced its workforce by hundreds of positions due to its exposure to the scheme.

Drivers Face Extended Wait for Payments

Many motorists have been waiting years for compensation following the 2021 ban on DCAs, with some agreements dating back nearly two decades.

Thousands have filed complaints or initiated legal action, only to have proceedings paused pending the FCA’s final decision.

While the regulator had aimed to launch the compensation program by early 2026, delays and prolonged consultations — partly driven by lender concerns — have pushed back the timeline.

A further adjustment allows lenders three to five months to begin contacting customers who may qualify for compensation.

Under current plans, most drivers will be approached directly by their lenders and invited to submit claims. Those who have already lodged complaints are expected to receive offers and payments sooner.

Still, additional delays remain possible if lenders or claims management firms challenge the FCA’s ruling.

They will have 28 days to file an appeal with a tribunal, a process that could escalate to higher courts before any compensation is distributed.