Millions of drivers who were mis-sold car finance agreements should receive compensation this year, under plans by the regulator.

Average payments of about ยฃ829 are expected under the rules published by the Financial Conduct Authority (FCA).

The vast majority of new cars, and many second-hand ones, are bought with finance agreements. Customers pay an initial deposit to secure the vehicle, then a monthly fee with interest.

Compensation could be given to many of those who took out a car loan between April 2007 and November 2024.

The decision by the FCA, the financial regulator, applies to about 12 million car loans - just over 40% of the total number during the period.

In 2021, the FCA banned deals where car dealers received commission from lenders, based on the interest rate charged to the customer. These were known as discretionary commission arrangements (DCAs) and customers were often not told about them.

The FCA said this provided an incentive for a buyer to be charged a higher-than-necessary interest rate, leaving them paying too much.

Other car buyers were also judged to have signed unfair contracts because the commission paid to the dealer was so high - accounting for at least 35% of the total cost of credit and 10% of the loan.

Some customers were not given accurate information about the best finance deal because of exclusive arrangements between car dealers and lenders.

Under the latest proposals, the FCA expects average payouts of ยฃ829 per mis-sold agreement.

The total cost of the compensation, including administrative costs, could be about ยฃ9.1bn.

The exact amount individual consumers will receive will depend on the degree of harm suffered.

For some customers - especially if their contact details have changed - it could be many months before compensation is paid.

Complaints have already been made about four million finance agreements. Those people do not need to do anything.

The regulator said anyone who has not yet complained should contact their car loan provider directly, rather than using a third-party claims management company.

The regulator's central compensation scheme allows people to complain and potentially receive compensation for mis-sold deals, without the need for a lawyer or to go through the courts.

Motorists have also been warned to be on the alert for scammers posing as car finance lenders offering fake compensation.

The FCA has published this guidance on how to complain.

Under its plans:

Regulators have warned claims management companies and law firms involved in motor finance commission claims to make sure consumers do not have multiple representatives for the same claim, and are not charged excessive termination fees.

FCA boss Nikhil Rathi told the BBC's Today programme there are "many law firms out there who would like to get 30% of any compensation", stressing that the regulator's scheme  was "free to use" for consumers.

Millions of drivers should receive compensation this year, and most of the remainder should get compensation by the end of 2027.

Compensation could be delayed further if legal challenges are mounted by lenders.

The industry is expected to cover the full costs of any compensation scheme, including any administrative costs.

Lenders - including some of the UK's biggest banks and specialist motor finance firms - have already set aside billions of pounds for potential payouts.

However, the director of the body that represents the lending industry said before the final ruling that it thought the FCA was "overcompensating".

"We don't recognise losses on that scale," said Adrian Dally from the Finance and Leasing Association, adding that the number of people the regulator said lost out  "seems implausibly high".

The Supreme Court considered three test cases before it ruled. It focused on whether the car dealers had a duty to act on behalf of their customers, rather than in their own interests. The test case which was upheld was that of Marcus Johnson, who bought his first car - a Suzuki Swift - in 2017.

In his case, the Supreme Court said the terms of his finance deal were unfair due of the size of the commission payment, and the fact he appeared to have been misled over the relationship between the finance firm and the dealer.

Millions of motorists could be entitled to compensation with the financial regulator setting out how to apply

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