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To give firms time to prepare, the Financial Conduct Authority has applied a “short implementation period”.

This means they do not have to take action before 30 June for loans taken out from 1 April 2014 or 31 August for those taken out earlier.

From these dates, lenders will have three months to inform drivers whether they are owed compensation and how much.

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.

The FCA said people who had already complained or who complain before the end of the implementation period would be compensated sooner than those who do not.

Anyone not contacted has until 31 August 2027 to make a claim. 

Payouts ‘should not be delayed any longer’, boss of regulator says

We’ve heard from the chief executive of the Financial Conduct Authority after its announcement.

Nikhil Rathi says the FCA has listened to feedback to make sure the scheme is fair for consumers and proportionate for firms.

“It will put £7.5bn back into people’s pockets,” he says.

“Now we need everyone to get behind it and ensure millions get their money this year.

“Payouts should not be delayed any longer, especially as household bills come under greater pressure.”

Rathi says delivering compensation promptly gives lenders the chance to rebuild trust, adding it means “we can draw a line under the past and support a healthy motor finance market for the future.”

‘There’s going to be a lot of eagle eyes on this redress scheme’

It’s important compensation is paid to claimants quickly and that it’s done in the right way, the director of Sentinel Legal says.

Speaking to presenter Jayne Secker, Sam Ward outlines the key issue people in the legal industry have had with this case.

“On the claimant side, you have spent years and years litigating these car finance claims on behalf of clients across the courts in the UK,” he says.

“It’s not one size fits all, and that’s where we take real issue with what the FCA is saying.”

Ward explains that if clients are being undercompensated, then they shouldn’t be advised to go for this route.

“There’s going to be a lot of eagle eyes on this redress scheme and finding out what’s the best appropriate course of action for the clients,” he adds, discussing the next steps.

“If we need to challenge it through a statutory instrument, then the claimant firms on our side are already discussing the feasibility of that.”