Martin Lewis: Car finance mis-selling payouts of £700 each likely for 14 million people – are you one of them?

Below, Martin explains:

- Who the scheme covers
- The three types of mis-selling
- How much compensation you'll get
- What to do if you've already put in a complaint
- What to do if you haven't
- Your options if you've signed up to a claims firm

Watch: Martin's instant analysis of the car finance compensation scheme

Below is a direct transcript of what Martin said, though we've split it into sections for ease.

Who the scheme covers

Martin: "This is important news for anyone who bought a car on Hire Purchase (HP) or Personal Contract Purchase (PCP) finance between April 2007 and November 2024. The regulator, the Financial Conduct Authority, has just announced its planned redress scheme, the biggest one we've seen since PPI. 

"Of the 32 million car finance agreements in that time, 14 million were likely mis-sold, according to the regulator, and are due a typical payout of £700. And what really made me raise my eyebrows is that the way it's going to be paid out is by far the simplest form of redress scheme we've seen, never mind for one of this scale. So let me talk you through it in detail. 

"This is actually a consultation. But in reality it's the regulator setting out what it wants to do. It has to by law allow a consultation, but it's unlikely to change apart from at the edges. 

"The consultation closes in November. The redress scheme is likely to start in early 2026.

:Now, it's interesting that it's going back to car finance deals from 2007; that one was in the balance. Firms were trying to make it start later, but the regulator has pushed hard and I spoke to the boss of the regulator a few moments ago and he said 'for us, that was a principle because this is the law'. So I'm pleased to say it's going back that far.

The three types of car finance mis-selling

"There are three categories of car finance mis-selling in this. One of them I've talked about a lot, two I haven't - so this may well be new to you. 

"Now all of them rely on non-disclosure. In other words, you weren't told this was going on – if you were told, which is very rare, then you generally weren't mis-sold. Let me go through them step by step.

• "The first one is the big one. Discretionary commission arrangements – DCAs. This is where it was hidden that the dealer effectively was getting more commission because you were charged a higher interest rate and because you didn't know about that, that's deemed as unfair.
  
  "The problem here is, you still won't know if it happened to you. The only way to find out – and this is what my template letters on MoneySavingExpert.com do – is write to the lender and say 'did I have a discretionary commission arrangement?'
  
  "[This accounts for] 11.4 million arrangements. By the way, I should say, the total number of these are going to add up to more than 14 million, because sometimes you are in more than one category.

• "The next is where the dealer was contractually tied. In other words, it said 'we'll go to a panel of lenders to find you the best car finance', but in reality, one firm had first dibs and if it wanted to give you car finance, that is the deal that you were given. That's 3.2 million cases. 

• "The third one is unfairly high commission. And that's 2.9 million cases. This is where the amount of commission was both over 35% of the total cost of the credit and over 10% of the amount that you borrowed. If both those things add up, then that is a distortion of the market and you were charged too much. 

"So those are the three cases; you'll know about the first one, the other two may be new to you. That means you may be owed money that you didn't know about. 

How much compensation you'll get

"So how much are they going to pay out? Well, the regulator has done a market assessment of how much you were effectively hard done by, because of the perversion of the market, because of the fact that these things existed.

"And what it said is: it will be roughly 17% of the interest. So for every £1,000 of interest you were charged, you'll get back £170 – and that's being done on an average. It's not a case by case basis, so some people maybe will be worse off because of this, some people will be slightly better off because of this. 

"You could say it should be more, but I think that's balanced by the fact of how easy it will be for most people to get their money. There is a way to get more militant. I'll talk about that a little bit later. Now, that's going to apply in all three cases, with one exception – which will be extremely unfair high commission.

"If the amount of commission on your loan – and this only applies to 13,000 or 14,000 people – [if it] was over 50% of the cost of credit, and over 22.5% of the total cost of borrowing, then you'll be given commission based on the Johnson case in the Supreme Court (don't worry about that). 

"Effectively, you'll get all the commission and the interest paid back, so you'll get a lot more money back. It's only a small number of people. 

What you need to know if you've already put in a complaint

"So what do you have to do? Well, this is where I say it gets easy. 

"If you have already put in a complaint and that complaint means you were mis-sold under [the three] categories, once the redress scheme launches – probably in January or February next year – the car finance firm will have three months to write to you and tell you that you're included in the scheme and then you will automatically be included by doing nothing.

"You can opt out of it [but] once you opt out, you can't opt back in. But if you don't do anything, you're going to get your money. 

"'Why would I opt out of it?' - you may ask me. Well, you might opt out of it if, for example, you wanted to take a more militant approach and take the lender to court in the hope that you will get more money back. 

"Now I'm going to be mainly focusing on the standard FCA redress scheme, but I want you to know that that is available to you. I mean, it's for people who know what they're doing OR people who probably want to use a law firm or a claims management firm who will take a cut of what you get.

"I would not be touching one of those firms if I'm just going through the FCA's scheme, because this scheme is near automatic payout. 

"But in that very specific example, if you want to go to court, then you might want to use a claims management firm. 

What to do if you're completely new to this

"If you haven't already complained, then the firms have to try and identify all the people who were mis-sold under all these categories and need to get in touch with you within six months of the scheme [starting], but then you'll have to opt in. 

"So you'll have to actively say 'I want to be a part of this and I want to get that money.' Now, in my view – and I suggested this to the regulator boss when I was talking to him about this – in most cases it would be a lot easier if you were in the 'I've already complained' category. So that means you probably want to put in a complaint NOW, so that you're in that category by the time the redress scheme starts (if you were mis-sold). 

"To do that, well, you don't want to use a claims firm – because why would you give the money [away] when it's going to be an easy payout.

"We have a template letter on MoneySavingExpert.com at the moment, but only for discretionary commission arrangements. My team and I will be working in the next couple of weeks doing that for the 'contractually-tied' system and the 'unfairly high commission system' as well. So you'll be able to complain at that point and then once that's done, if you do have a case, well, you'll get the money without doing anything once they write to you.

"A couple of questions people ask me here. The first question I get is: what if there's no information, what if they can't track me because it's too long ago – maybe it was 2010, 2009. 

"Well, that's going to be difficult because often that information is destroyed. So then the onus will be on you. Have you got any proof that you had a car finance deal at that time? I'm saying an old credit reference file that includes it, an old bank statement, or a form where [you can prove that] you were paying them. 

"If you do, that could be enough. What they'll then probably look at is whether that firm was systemically doing one of these categories [of mis-selling] to people in your situation at the time and if so, it's possible you will get a payout.

"But if it's very old and you don't have the documents and the firm has deleted the documents, then it’s going to be difficult. So if you’re one of those people who nerdily kept all their files from a long time ago, you're going to be one of the ones who's most successful.

'I signed up to a claims firm – what can I do?'

"The final question I'm asked: 'I went through a claims management firm, and now I'm going to get a payout without them doing anything. What can I do?'

"Well, there's a news story on MoneySavingExpert.com about this that we put out. The regulators, both the financial regulator [the FCA] and the solicitors regulator [Solicitors Regulation Authority] have said while they [claims firms] can charge a cancellation fee – as long as that was in your original contract and up front – if they're not doing anything, they shouldn't be charging you for work they haven't done. 

"So it should only be a proportionate fee to the actual amount of work that's being done and if you're getting an automatic payout, that should be relatively small. 

"So you might want to make a cancellation to the firm and say that you won't be paying them this money, or only a proportion of this money. And if they disagree, well, you could then take them to the Claims Management Ombudsman, which is part of the Financial Ombudsman, or if it's a law firm and regulated that way, the Legal Ombudsman.

"Okay. That is my big picture explanation. But please remember this is my first read of all of this. I'm just trying to give you a heads up of where we are. 

"We're going to publish a lot more details on MoneySavingExpert.com over the next week or so, and then template letters in a week or two. So make sure you get the weekly email so I can notify you about the missing email. 

"I'm going to be doing a podcast on this on Thursday, so if you've got any questions, I'll put out a note on social media and you can ask me questions that way, and I will try and go through it all - that’ll be on the Martin Lewis podcast when it’s available on the podcast places and BBC sounds. I hope this helped."