Millions of people are on track to receive payouts averaging £700 after details of a planned compensation scheme for victims of the UK’s car finance scandal were published.

That figure is lower than expected, and many lenders’ share prices surged on Wednesday as markets apparently concluded this was a good result for them. Banks appear to be on the hook for significantly less compensation than had originally been indicated.

What is the latest on this?

On Tuesday the City regulator published its long-awaited proposals for an industry-wide scheme to compensate millions of people who were treated unfairly when they took out motor finance to buy a new or secondhand car.

This is to do with the alleged mass mis-selling of car loans – a scandal that involved “secret” commission payments by lenders to car dealers, and millions of car buyers unknowingly paying more for their finance than they should have.

The proposed scheme would cover motor finance agreements taken out between 6 April 2007 and 1 November 2024 where commission was paid by the lender to whoever sold the loan – usually the car dealer.

The FCA said it estimated that 14.2m loan agreements – 44% of all those made since 2007 – would be considered unfair and therefore due compensation.

However, that probably does not translate into 14.2 million people getting a payout, as some motorists bought several cars in the period and could therefore be eligible for multiple payouts totalling thousands of pounds.

The vast majority of new cars and an increasing number of used vehicles are bought with motor finance, typically either a personal contract purchase plan or a hire purchase agreement.

Final point: this is a consultation exercise, so some (or a lot) of this could change.

Who is in line for compensation?

The scheme the regulator is consulting on will largely focus on people whose deal included a “discretionary commission arrangement” (DCA), a particularly controversial type of car finance banned in 2021.

With , lenders gave dealers the power to set the interest rates, with dealers getting more commission the higher the rate. This allegedly gave dealers an incentive to overcharge customers. It is the lenders – typically banks – who are on the hook for the compensation. The FCA estimates that 11.4m such loans are likely to be eligible for a payout.

However, there are also two other main types of case. The second-biggest category – accounting for 3.2m loan agreements that are likely to be in line for compensation – is where there was an arrangement between the lender and the dealer that gave the lender exclusivity or first refusal when it came to providing credit, which was not properly disclosed.

The third type – accounting for 2.9m eligible cases – involves unfairly high commission (where the commission was at least 35% of the total cost of the credit and 10% of the amount borrowed) that was not properly disclosed.

Some of the loan agreements will fall into more than one category, which is why adding up those three figures comes to more than 14.2m.

How much money might I get?

The FCA said in August that it estimated “most individuals will probably receive less than £950 in compensation per agreement”. Now it expects eligible consumers to receive an average of about £700 an agreement, with many receiving more than that “and a large number receiving less”.

FCA documents suggest that for DCAs, the mean proposed payout (the arithmetical average) would be £665, while the median figure (the middle value in a dataset) would be £517.

For the second category named above, the figures are £686 and £526, and for the third they are quite a bit higher: £1,108 and £960.

On average, people’s payouts will be boosted by 2% of interest.

The regulator said this was a complex issue and “not everyone will get everything they would like”.

When might I get my money and how?

Some people could get their payout as early next year; for others it will probably be later in 2026. Payouts will depend on whether people have complained already and how prepared their lender is.

It is estimated there have already been more than 4m complaints lodged with firms, though many have been “paused” since 2024.

The FCA said that when the scheme goes live, “we expect firms to resolve promptly those complaints they already have – so customers who have already complained are likely to have their case dealt with sooner”.

The scheme will be free to access for consumers. It is proposed that those who have already complained will be included unless they opt out. Those who have not yet complained, or have had their complaint rejected by their firm but not taken it to the Financial Ombudsman Service (FOS), will be asked to opt in.

Lenders will need to contact people who have already complained within three months of the scheme starting. Those who have not already complained would be contacted within six months.

Those motor finance customers who do not receive a letter, for example, because the company no longer has their details and cannot trace them, will have a year from the scheme starting to make a claim to their lender.

People who have already been compensated would be excluded. Meanwhile, those who have a live complaint with the FOS will have their case resolved by the FOS and not through the scheme.

“If consumers don’t know who their lender was, there’s information on how to check on the FCA website,” said the regulator, which will run an ad campaign to raise awareness.

Should I use a claims firm? What if I’ve signed up with one already?

Those who choose to use a claims management company (CMC) or law firm could lose a significant amount of any compensation owed, said the FCA.

“There’s no need as people can submit their own complaint using a template letter on the FCA’s website,” it added.

If you signed up with a claims firms and now want to opt out and use the official scheme to seek a payout, you may face an “exit fee” – but UK regulators this week revealed they are clamping down on “bad practice” in this area. For example, two FCA-regulated CMCs have agreed to change their exit-fee policies.

What happens now?

If you have not complained and you think you are affected, you should probably do so now, say consumer experts.

The FCA’s consultation on its proposed compensation scheme closes on 18 November. It expects to publish the final rules “by early 2026”. The scheme would launch at the same time, with consumers starting to receive their money over the subsequent weeks and months.