The Financial Conduct Authority has outlined a compensation scheme for UK motorists mis-sold car finance that is expected to cost lenders £11 billion, comprising £8.2 billion in payouts and £2.8 billion in programme costs.

The regulator said the scheme would cover about 14 million motor finance agreements taken out between 6 April 2007 and 1 November 2024, with eligible consumers receiving an average of about £700 per agreement.

“Many motor finance lenders did not comply with the law or the rules. Now we have legal clarity, it’s time their customers get fair compensation,” said Nikhil Rathi, the FCA’s chief executive. “We recognise that there will be a wide range of views on the scheme, its scope, timeframe and how compensation is calculated.”

The FCA’s estimate is lower than some earlier projections and follows an August Supreme Court ruling that curtailed the breadth of potential claims. Bloomberg reported the watchdog’s latest figures assume about 85 per cent of eligible consumers will participate, with the compensation total rising to £9.7bn if participation is universal.

The proposed scheme focuses on three undisclosed features that created unfairness: discretionary commission arrangements allowing brokers to adjust interest rates for higher commission, high commission structures of 35 per cent of the total cost of credit and 10 per cent of the loan, and exclusive ties between lenders and brokers. Where disclosure evidence is missing, lenders must presume borrowers were not given enough information.

Consumer bodies and industry groups offered contrasting reactions. The BBC quoted Adrian Dally of the Finance and Leasing Association saying the FCA “is overcompensating” and that the scale of losses “seems implausibly high.” David Bott of Bott and Co questioned whether the average £700 payment “reflects the real financial harm suffered by consumers.” The Guardian highlighted the regulator’s intent to “draw a line under this issue quickly,” with payouts expected to start early next year.

Banks have already booked provisions. Lloyds Banking Group, the largest provider of car finance through Black Horse, has taken a £1.2 billion charge, with analysts suggesting further amounts may be needed depending on market shares and final scheme mechanics. The FCA said lenders will contact those who have already complained, and consumers who have not yet complained will be approached within six months of the scheme’s start to opt in.

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