Millions of motorists are in line for compensation after Britain’s financial watchdog pressed ahead with a sweeping redress scheme for mis-sold car finance deals, with lenders beginning to fall into line.
Around 12.1 million agreements could qualify for payouts worth an average of £829 each, according to the Financial Conduct Authority, which expects total compensation to reach £7.5bn.
The scheme, one of the largest consumer redress programmes in recent years, is forecast to have the bulk of claims settled by the end of 2027, with millions of payments expected as early as this year.
In a significant development, Santander said it would not challenge the plans, opting instead to focus on delivering compensation to affected customers.
Those who have already lodged complaints are likely to be first in line for payouts, the regulator has indicated, as lenders are now permitted to begin making payments immediately.
At the heart of the scandal are so-called discretionary commission arrangements (DCAs), widely used before their ban in 2021. These deals allowed brokers — including car dealers — to increase the interest rates charged on loans to boost their own commissions.
The watchdog concluded that such practices created clear unfairness, leaving many customers unaware they were being charged higher rates and depriving them of the chance to secure better terms elsewhere.
Motorists who were not properly informed about high commission structures or contractual ties between lenders and brokers are among those eligible for compensation. The scheme covers agreements from April 2007 to November 2024.
Santander said its decision had been “finely balanced”, citing a desire to provide certainty for customers, shareholders and the wider motor finance market despite reservations about aspects of the proposals.
The final framework follows extensive consultation, with more than 1,000 responses submitted by lenders, consumer groups, carmakers and industry bodies.
Initial plans had drawn criticism from all sides. Finance providers argued that compensation levels were excessive and overstated consumer losses, while campaigners and some MPs warned motorists risked being underpaid.
In response, the regulator has tightened eligibility criteria, aiming to ensure that only those who were genuinely treated unfairly receive redress. It also expects roughly a third of cases to be capped to prevent overcompensation.
For millions of drivers, however, the scheme represents long-awaited restitution — and a potentially significant financial boost amid ongoing pressure on household budgets.
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