Lawyers brand FCA’s £700 motor finance compensation ‘insulting’ to millions owed more
Lawyers have condemned a new Financial Conduct Authority (FCA) compensation scheme that could see millions of motorists receive an average payout of just £700, describing the figure as “a kick in the teeth” for consumers misled by lenders.
The regulator confirmed this week that it will introduce a lawyer-free redress scheme to compensate car finance customers who were charged inflated rates due to secret commission arrangements between brokers and lenders. The FCA estimates that lenders will pay out a total of £8.2 billion, but critics say the individual payouts fall far short of what victims deserve.
The scheme, which aims to resolve cases quickly and without legal fees, will apply to motor finance agreements made between 6 April 2007 and 1 November 2024. It follows a landmark Supreme Court ruling earlier this year, which found that some lenders had broken financial regulations by failing to disclose commission payments — a breach that deprived consumers of the chance to negotiate better deals.
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The FCA initially suggested in August that the average payout could be around £950, but has now revised that figure down to £700.
Nikhil Rathi, the FCA’s chief executive, defended the plan, saying the regulator had sought to balance fair compensation with stability in the motor finance market.
“We recognise there will be a wide range of views on the scheme, its scope, timeframe and how compensation is calculated,” he said. “On such a complex issue, not everyone will get everything they would like. But we want to work together on the best possible scheme and draw a line under this issue quickly. That certainty is vital, so a trusted motor finance market can continue to serve millions of families every year.”
The regulator said the scheme will be free to use, and consumers will not need to go through the courts or hire a solicitor. Instead, claimants will be able to submit a complaint directly to their lender using a template letter available on the FCA’s website. The watchdog will oversee compliance to ensure firms are meeting their obligations, with the first payouts expected as early as next year.
But legal professionals and consumer rights firms have reacted angrily, accusing the FCA of letting lenders “mark their own homework”.
Kavon Hussain, of Consumer Rights Solicitors, whose firm represents more than a third of the FCA’s estimated claims, criticised the regulator for failing to hold the finance industry accountable.
“This is yet another kick in the teeth for consumers,” he said. “The regulator has known for years that banks have been misleading customers about commissions, yet there’s been no mention of fines or repercussions for the industry. Instead, the FCA wants lenders to self-report unfair commission amounts — it’s like letting a known cheater mark their own homework.”
Consumer lawyers argue that the average payout is disproportionately low given the scale of the financial harm caused by undisclosed commissions, which in some cases led borrowers to pay hundreds or even thousands more for their car loans.
Bott & Co, a north-west law firm continuing to handle motor finance claims independently of the FCA scheme, said the regulator’s approach raised serious concerns about fairness.
“The true measure of success will be whether it delivers meaningful compensation that reflects the real financial harm suffered by consumers,” the firm said. “The average payout figure of £700 per agreement raises serious questions about whether the scale of redress will match the severity of wrongdoing.”
Consumer groups have warned that, while the FCA’s simplified scheme may offer speed and accessibility, it risks undermining justice for claimants who could have achieved higher settlements through the courts.
The FCA maintains that its approach will provide certainty and finality for both lenders and consumers, after years of confusion surrounding the legality of car finance commissions.
Millions of car owners are now expected to check their eligibility, but for many lawyers, the regulator’s latest plan represents yet another missed opportunity to hold the motor finance industry fully to account.