Millions of motorists could receive compensation under the UK’s planned car finance redress scheme, with average payments estimated at £830 per eligible agreement. Yet analysis suggests a large group of lower-income drivers may not qualify under the current rules.
The proposed compensation programme, led by the Financial Conduct Authority (FCA), remains subject to legal challenges from both consumer groups and lenders. While the regulator continues to defend the scheme, payouts remain uncertain.
The FCA’s redress plan was created to compensate consumers who may have been mis-sold motor finance agreements involving commission arrangements that were not properly disclosed. According to the regulator, around 12 million agreements could fall within the scope of compensation. At the same time, criticism has emerged over eligibility thresholds that exclude some lower-value agreements, raising questions about who ultimately benefits from the scheme.
Lower-Value Car Finance Agreements May Fall outside Compensation Plans
According to analysis by consumer law firm Slater and Gordon, approximately 1.1 million lower-value motor finance agreements would not qualify for compensation under the FCA’s proposed rules.
The exclusion applies where commission levels were £120 or less for agreements entered into before 1 April 2014, and £150 or less for agreements after that date. Under the regulator’s framework, commission below those thresholds is considered unlikely to have influenced either consumer decisions or broker conduct.
Slater and Gordon said its assessment, based on client data and case experience, indicated that these lower-value agreements were commonly used to finance cheaper cars or vans, often involving borrowing of only a few thousand pounds.
Elizabeth Comley, chief operating officer at Slater and Gordon, argued that the thresholds disproportionately affect financially stretched households. She said the people excluded from compensation were often those purchasing lower-cost vehicles through smaller loans and who were less able to absorb financial losses.
Comley added that consumers taking out finance agreements worth around £2,000 were generally not high-income borrowers and were instead people trying to afford access to a vehicle.
Legal Challenges Leave the Compensation Scheme in Limbo
The wider redress programme remains uncertain as legal disputes continue around its design and cost.
According to the FCA, the proposed scheme could lead to average compensation payments of around £830 per eligible agreement, although actual amounts would vary depending on the details of individual finance arrangements. Consumer Voice, which represents consumers, is pursuing legal action against the compensation proposals. The group argues that drivers who suffered harm under car finance agreements risk receiving less compensation than they should.
At the same time, three lenders have launched legal proceedings against the FCA’s plans. The legal action involves the financial services divisions of Volkswagen and Mercedes-Benz, alongside the car finance arm of Crédit Agricole. The regulator has estimated that the scheme could cost the industry approximately £9.1 billion.
According to the FCA, these ongoing court proceedings could delay implementation, alter the final structure of the scheme, or prevent it from proceeding entirely. Despite that uncertainty, the regulator has stated that it believes the redress framework is fair to consumers and proportionate for firms.
The FCA continues to advise motorists who believe they may be eligible to complain directly to their lender rather than use claims management companies or law firms that may charge fees.
