Millions of car loan scandal victims could receive £700 payout, says FCA

Victims of the UK's car finance scandal are likely to receive compensation payouts averaging £700 resulting from 14m unfair loans, the City regulator said yesterday.

- Rupert Jones

The payouts would be less than previously expected, but the Financial Conduct Authority (FCA) said lenders could be landed with an £8.2bn compensation bill, which could go as high as £9.7bn.

This looks likely to be the biggest mass payout relating to a financial product since the payment protection insurance (PPI) mis-selling debacle, which led to 34 million consumers receiving an average of about £1,000 each.

The City regulator's long-awaited proposals for a compensation scheme cover millions of motor finance agreements taken out between April 2007 and November 2024. Payouts could start early next year, it said.

They relate to the alleged mis-selling of car loans involved in the payment of "secret" commissions to car dealers, and millions of car buyers unknowingly paying more for their finance than they should have done.

Launching a consultation, the FCA said based on the number of consumers it estimated could take part in the scheme, lenders could end up paying out £8.2bn in compensation. The expected £2.8bn of running costs that firms would also have to meet would take the bill to £11bn.