Car Finance Payouts to Average £830 — But 2 Million Fewer Loans Qualify

Drivers overcharged for car finance are projected to receive an average payout of £830, though the City regulator has narrowed the scope of its compensation scheme. The Guardian reports that the Financial Conduct Authority (FCA) has reduced the number of loan agreements eligible for redress from 14 million down to 12 million, clarifying the scale of a scandal that has impacted millions of UK motorists.

The investigation centers on discretionary commission arrangements, a now-banned practice where car dealers were given the power to set interest rates on loans. This created a direct incentive for dealers to charge customers higher rates to earn a larger commission from the lender, a conflict of interest that wasn't disclosed to the buyer.

The Mechanics of Overcharging

The practice in question was widespread for years. According to the BBC, lenders would provide a range of possible interest rates, and dealers would profit more by signing customers up at the higher end of that range. The FCA outlawed these arrangements in January 2021, but the regulator is now dealing with the financial fallout for contracts signed before that date.

The sheer volume of potential claims led the FCA to step in. After seeing a surge in complaints filed with the Financial Ombudsman Service, the regulator intervened to prevent what it called “disorderly, inconsistent and inefficient outcomes” for consumers and firms alike. This suggests the regulator feared a wave of individual lawsuits that could clog the courts and result in uneven payouts.

To manage the process, the FCA has paused the standard eight-week deadline for firms to respond to complaints. This pause is currently set to last until 25 September 2024, giving the regulator time to establish a structured and consistent redress framework for all affected consumers.

What Drivers Can Expect

While the £830 figure provides the first concrete estimate of potential payouts, the final amount will depend on the specifics of each loan, including its size and the interest rate charged. The FCA has not yet published its final plan for how compensation will be calculated and paid.

The consensus across reports is that millions of people who bought a car, van, or motorbike on finance before 28 January 2021 could be entitled to a payment. The reduction in eligible contracts to 12 million, however, means that two million people who may have thought they were covered are no longer expected to be part of the scheme.

This is a market correction years in the making. For consumers, it means a potential refund for being unknowingly upsold on interest rates. For the finance industry, it represents a significant, multi-billion pound liability for past practices.

The FCA is expected to set out its final plan in the third quarter of 2024. Until then, drivers who believe they were affected can still log a complaint with their lender to ensure they are in the system, even though a final response will be delayed.