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Here are updates on the UK car finance redress scheme. 

Compensation payouts are due on around 12.1 million unfair motor finance deals, at an average of £829 each. 

Motorists are expected to get a higher payout than the £700 estimated under previous proposals by the Financial Conduct Authority.

But around two million fewer deals are eligible for compensation.

Here’s a quick rundown of everything you need to know about what’s been announced today: 

What deals are covered by the scheme? 

The programme covers unfair agreements taken out between 6 April 2007 and 1 November 2024.

Most of the car finance deals covered involve so-called discretionary commission arrangements, which were banned in 2021.

This refers to arrangements whereby brokers, including car dealers, were able to increase interest rates on car loans so they could get more commission.  

High-value loans, which are classed as those that were for amounts higher than 99.5% of other loans that year, are not covered by the scheme. 

How does it work? 

From 30 June, lenders will have three months to inform drivers with loans taken out from 1 April 2014  whether they are owed compensation and how much. 

They will have three months from 31 August to get in touch with drivers who have taken out loans before then. 

Customers who have made inquiries about their car loans should be told whether they are eligible and how much they could receive by the end of this year.

Firms also have until the end of 2026 to contact people with affected car loans dated since April 1 2014, who have not made a complaint.

They will have until the end of February 2027 to complete this for those with older loan agreements.

Lenders will only contact people who haven’t complained if they are likely to be owed money.

Consumers must respond within six months of these dates if they wish to join the relevant schemes.

When will compensation be paid? 

The FCA thinks millions of claims will be paid out this year, and the vast majority will be settled by January 2028. 

It is expecting the total amount of redress paid under its scheme to be about £7.5bn, lower than the previous £8.2bn estimate, and based on about 75% of eligible consumers making a claim.

The average compensation payment for each car finance deal will be around £829.

The FCA had previously suggested the payout would be £695 per deal.