Thousands of motorists who bought cars on finance before 2021 could be set for payouts as the Financial Conduct Authority (FCA) has said it will consult on a compensation scheme.
In a statement released on Sunday, the FCA said its review of the past use of motor finance "has shown that many firms were not complying with the law or our disclosure rules that were in force when they sold loans to consumers".
"Where consumers have lost out, they should be appropriately compensated in an orderly, consistent and efficient way," the statement continued.
Read more: How to tell if you've been mis-sold car finance
The FCA said it estimates the cost of any scheme, including compensation and administrative costs, to be no lower than £9bn - adding that a total cost of £13.5bn is "more plausible".
It is unclear how many people could be eligible for a payout. The authority estimates most individuals will probably receive less than £950 in compensation.
The consultation will be published by early October and any scheme will be finalised in time for people to start receiving compensation next year.
The announcement comes after the Supreme Court ruled on a separate, but similar, case on Friday.
The court overturned a ruling that would have meant millions of motorists could have been due compensation for over "secret" commission payments made to car dealers as part of finance arrangements.
The FCA's case concerns discretionary commission arrangements (DCAs) - a practice banned in 2021.
Under these arrangements, brokers and dealers increased the amount of interest they earned without telling buyers and received more commission for it. This is said to have then incentivised sellers to maximise interest rates.
In light of the Supreme Court's judgment, any compensation scheme could also cover non-discretionary commission arrangements, the FCA has said. These arrangements are ones where the buyer's interest rate did not impact the dealer's commission.
This is because part of the court's ruling "makes clear that non-disclosure of other facts relating to the commission can make the relationship [between a salesperson and buyer] unfair," it said.
It was previously estimated that about 40% of car finance deals included DCAs while 99% involved a commission payment to a broker.
Read more:
Storm Floris to hit the UK with 90mph winds
Teenagers arrested over murder of 19-year-old
Nikhil Rathi, chief executive of the FCA, said: "It is clear that some firms have broken the law and our rules. It's fair for their customers to be compensated.
"We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal."
(c) Sky News 2025: FCA considering compensation scheme over car finance scandal - raising hopes of payouts fo
Lucy was murdered in 2005. There's been no confirmed sighting of a key suspect ever since
Storm Floris: Amber warning issued with 'danger to life' 90mph winds forecast
Three teenagers arrested in connection to murder of 19-year-old in Bury
Strictly Come Dancing: BBC responds as two TV stars accused of taking cocaine
