Consumer groups claim 2.09% figure ‘underestimates’ years of overpaid interest [1], as regulator says fairness to all involved is key to scheme.

The UK financial watchdog has published a consultation setting out a proposed redress scheme [2] that could see millions of UK motorists receive compensation in connection with historic commission practices: a further development in the continuing saga of car finance mis-selling claims car finance mis-selling claims.

Under the draft plan, consumers found to have been charged inflated interest rates through discretionary or fixed commission agreements would receive refunds calculated using a 2.09% compensatory interest rate. The figure, set out as part of the FCA’s wider consultation, has drawn concern from consumer representatives who argue it falls well below what claimants might have received under previous rulings.

This comes amid heightened public attention following the car finance scandal, where thousands of UK borrowers discovered they may have unknowingly paid excessive interest on their loans. The FCA expects to pay compensation to millions of mis-sold car finance customers next year, signalling one of the largest consumer redress efforts in recent financial history.

Background to the Redress Proposal

The plans were put forward by the Financial Conduct Authority (FCA) following a multi-year probe into discretionary commission arrangements (DCAs) which let car dealers and brokers vary a customer’s interest rate in return for a larger commission from the lender.

However, since being banned by the FCA in 2021 [3], some drivers have discovered that they paid hundreds – if not thousands – of pounds more than they should have across the length of their finance deals. It is thought that as many as 14 million car finance deals in the UK fall within the scope of the redress scheme [4] that will give firms a consistent and efficient process for resolving car finance claims.

For many affected consumers, this could mean significant car finance refund opportunities once compensation timelines are finalised. More details are available in the latest information on UK car finance claims published by industry experts.

Mixed Reaction Across the Industry

While many in the consumer rights sector have welcomed the FCA’s progress in setting out a framework, several advocates criticised the proposed 2.09% compensatory interest rate as “unrealistic.”

Consumer groups say past court precedents, including the Marcus Johnson v Black Horse case where the rate was set much higher at around 8% [5], mean the FCA's rate will dramatically cut the compensation due to drivers.

Industry observers have said the FCA has a "knife-edge" choice between consumer-friendly outcomes and stability in a motor-finance sector where liabilities could be in the tens of billions of pounds.

Motorists pursuing PCP claims have also raised concerns about delays in receiving compensation. Questions like how long does a PCP claim take and how long does car finance claims take to pay out have become central to the discussion, as drivers await clear timelines for redress.

FCA’s Position

Responding to the criticism, the FCA said the proposal would create a "fair, proportionate and sustainable" outcome for the industry as a whole. It added that the 2.09% rate was "midway in the range of what has been seen in the market over time" and "allows lenders to pay the redress they owe without threatening their wider financial stability".

The FCA’s consultation process remains ongoing [5], with stakeholders, including lenders, consumer groups, and claims firms, invited to submit feedback before final terms are confirmed. For consumers, the final ruling will likely determine when the PCP payout is issued and how much redress they can expect.

Consumer Perspective on the FCA’s Proposal

Consumer groups have called the FCA’s proposal a “significant” move to end years of confusion over car finance mis-selling claims. It has been widely welcomed by consumer groups who have long called for the creation of a specific redress process to help motorists claiming for mis-selling.

At the same time, campaigners have urged the regulator to ensure that the final framework accurately reflects the financial losses experienced by individual borrowers. They emphasise that the interest rate applied to compensation should genuinely account for the excess costs consumers incurred through inflated finance charges.

Commentators are saying that this is the first time a major effort has been made to tackle historic problems in the car finance industry. Being clear about how redress will be calculated is widely considered vital to public confidence and a fair result for consumers.

What Happens Next

The FCA’s consultation is expected to conclude in late November 2025, after which the regulator will publish its final decision and implementation timetable.

Consumers who feel that they may have been affected by undisclosed commissions or by higher interest rates can examine their car finance agreements and get their documents ready before the scheme opens. A lot of people are also seeking the professional assistance of the best car finance claim company and their trusted adviser for clarity on their rights and eligibility.

As a service for consumers who are exploring their options, Reclaim247 is still available to help drivers with no-obligation eligibility and honest updates at no cost. Common questions such as how long does Reclaim247 take to process a claim can vary due to the complexity of the case and the evidence available but the company’s efficient system is designed to be fair and in accordance with FCA regulations.

Summary

The FCA’s car finance redress plan is a long-awaited light at the end of the tunnel for millions of drivers, but the question remains as to whether 2.09% delivers justice for drivers who overpaid. The regulator is focused on long-term sustainability, but consumer groups say fairness must be the north star as the industry looks to turn a corner.

Consumers can keep an eye on trusted media outlets and industry specialists to stay informed. Those who are affected by the scandal should also expect to hear more about claims processes, when they will be paid out, and how the refunds will be calculated as this next chapter of consumer rights in the UK is written.

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References:

1. Consumer groups claim 2.09% figure ‘underestimates’ years of overpaid interest - https://www.theguardian.com/business/2025/nov/02/car-finance-redress-scheme-rob-victims-4bn-fca
2. The UK financial watchdog has published a consultation setting out a proposed redress scheme - https://www.fca.org.uk/news/statements/fca-consults-motor-finance-compensation-scheme
3. DCAs were banned by the FCA in 2021 - https://www.fca.org.uk/publication/consultation/cp24-15.pdf
4. It is thought that as many as 14 million car finance deals in the UK fall within the scope of the redress scheme - https://www.fca.org.uk/news/press-releases/14m-unfair-motor-loans-compensation-proposed-scheme
5. Marcus Johnson v Black Horse case where the rate was set much higher at around 8% - https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf