Millions of people could each get hundreds of pounds in compensation over car loan mis-selling

Up to 14.2 million people could each receive an average of £700 in compensation due to car loan mis-selling, the financial services regulator has said.

Nearly half (44%) of all car loan agreements made between April 2007 and November 2024 could be eligible for payouts, the Financial Conduct Authority (FCA) said. Those eligible for the compensation will have had a loan where the broker received commission from a lender.

Lenders broke the law by not sharing this fact with consumers, the FCA said, and customers lost out on better deals and sometimes paid more. A scheme is seen by the FCA as the best outcome for consumers and lenders, as it avoids the courts and the Financial Ombudsman Service, therefore minimising delay, uncertainty and administration costs.

The scheme will be funded by the dozens of lenders involved in the loans, and cost about £8.2bn, on the lower end of expectations, which had been expected to reach as much as £18bn. The figure was reached by estimating that 85% of eligible applicants will take part in the scheme.

What if you think you're eligible? Anyone who believes they have been impacted should contact their lender and has a year to do so. Compensation will begin to be paid in 2026, with an exact timeline yet to be worked out.

The FCA said it would move "as quickly as we can". People who have already complained do not need to take action.

Complaints about approximately four million loan agreements have already been received. There's no need to contact a solicitor or claims management firm, the FCA said, as it aimed for the scheme to be as easy as possible.

A lender won't have to pay, however, if it can prove the customer could not have got cover anywhere else. The number of people who will get a payout is not known.

While there are 14.2 million agreements identified by the FCA, the same person may have taken out more than one loan over the 17-year period. More expensive car loans? Despite the fact many lenders have to contribute to redress, the FCA said the market will continue to function and pointed out the sector has grown in recent years and months.

In delivering compensation quickly, the FCA said it "can ensure that some of the trust and confidence in the market can be repaired". It could not, however, rule out that the scheme could mean fewer offers and more expensive car loans, but failure to introduce a scheme would have been worse.

Read more:UK steel set for further hit as EU to double tariffsIs another spectacular Bitcoin comedown inevitable? The FCA said: "We cannot rule out some modest impacts on product availability and prices, we estimate the cost of dealing with complaints would be several billion pounds higher in the absence of a redress scheme. "In that scenario, impacts on access to motor finance and prices for consumers could be significantly higher with uncertainty continuing for many more years.".