Millions of drivers to receive £700 compensation: how not to lose part of the payout.

According to The Sun: Millions of drivers can expect average payouts of £700 due to wrongly sold credit vehicles, but there are nuances that could reduce this compensation.

The Financial Conduct Authority (FCA) is actively fining lenders for improper disclosure of commission payments to car dealers, costing consumers billions.

Yesterday, the FCA announced a consultation plan regarding a compensation scheme for the entire industry, allocating approximately £8.2 billion for refunds.

The average client could receive £700 per agreement.

Drivers who entered into personal contract purchase (PCP) agreements or lease agreements with the right to buy between 2007 and 2024 may be eligible for compensation.

This applies to situations where brokers raised interest rates to earn higher commissions or lenders concealed fees exceeding 35% of the loan amount.

However, how you submit a claim for compensation will significantly affect the amount you receive.

The FCA emphasizes that drivers can submit applications directly to their lenders, without involving claims management firms or lawyers.

Despite this, six law firms already represent 3.7 million claimants with a total of 7.7 million claims, according to consumer rights group Consumer Voice.

Drivers who have already submitted a claim through a claims management firm or lawyer will automatically be included in the FCA scheme but may lose part of their money due to fees.

They have the option to withdraw their claim and submit a new one independently; however, if more than 14 days have passed since the withdrawal, they will have to pay an administrative fee.

Meanwhile, those whose complaints are being processed by the Financial Ombudsman Service should continue to submit claims through this channel instead of through the new FCA scheme.

How much compensation can I lose?

Many claims management firms and law firms charge a fixed fee of 36% of the payouts between £1 and £1,499.

This means that if you qualify for an average compensation of £700, you will only receive £448 after paying £252 in fees.

Some firms, like Consumer Rights Solicitors and missold-finance.co.uk, charge even higher fees – up to 48%.

In that case, you would receive only £336, as £364 would be taken in fees.

If you have already submitted a claim to one of these firms for more than 14 days and wish to withdraw, you will have to pay an exit fee.

At Courmacs Legal, which processes four million claims, this fee is £180.

By withdrawing your claim and submitting it directly through the lender, you could receive more.

By paying £180 exit fee and submitting the claim yourself, you would receive £520 in compensation – £72 more than if you stayed with Courmacs Legal.

Some firms are less transparent about their exit fees, so it is important to contact them for clarifications.

This will help you determine whether to cancel and submit the claim directly through the lender.

The FCA is actively taking action against firms that are not transparent about their exit policies.

Two claims management firms, the names of which are not disclosed, have already agreed to review their exit policies.

And two other companies have decided to stop taking on new clients and cease advertising until they can prove to the FCA that they meet its requirements.

Your cancellation rights

If you want to leave a claims management firm or law firm, first review your contract.

They may charge a cancellation fee, but it must be reasonable, justifiable, and clearly stated in advance.

Companies can only charge for work they have done and that you agreed to.

If the fee seems unclear or unfair, ask for clarification.

If you are dissatisfied, first complain to the firm — it must respond within eight weeks.

Still dissatisfied?

For claims management firms, contact the Claims Management Ombudsman at 0800 023 4567.

For law firms, redirect your complaint to the Legal Ombudsman.

Both services are free and can help you obtain compensation if you have been a victim of unfair treatment.

What to do if my complaint is with the Financial Ombudsman Service?

There is another issue for those who have already submitted a complaint to the Financial Ombudsman Service (FOS).

The FCA has reported that over 80,000 clients have reached out to the FOS.

However, these drivers will not be able to switch to the new, faster FCA scheme and must continue their claim through the slower FOS process.

This does not mean they will lose out on compensation.

Clients can still expect similar compensation amounts and will not be obliged to pay any fees.

What about submitting a claim directly?

The FCA noted that lenders have already accumulated around four million complaints.

To avoid unnecessary fees and delays, as well as ensure full compensation, drivers can use a free template letter available on the regulator’s website.

If you have already submitted a complaint, lenders are required to contact you within three months of the scheme's initiation.

You will automatically be included in the scheme unless you choose to opt out.

However, if you opt out, you will not be able to return later.

When the compensation scheme launches in 2026, lenders will re-evaluate all claims already submitted.

If you do not submit your claim before the scheme starts, lenders will reach out to you within six months of its start.

However, the FCA recommends submitting your claim now to expedite the process and receive compensation sooner.

Who is eligible for compensation?

Over 14 million car credit agreements made between April 2007 and November 2024 may be eligible for compensation.

To qualify for it, you must have entered into a personal contract purchase (PCP) or a lease-to-buy agreement during this period, where the lender paid commission to the broker.

You will only receive compensation if your lender did not inform you of one of the three conditions:

• Discretionary commission agreement (DCA): This agreement allows brokers to adjust the interest rate offered to the client. A higher rate means higher commission for the broker, which ultimately must be paid by the client, and the client was not informed about this.
• Hidden commission agreement: The FCA considers this situation unfair if the commission for the broker was 35% or more of the total costs of the credit or equaled at least 10% of the loan amount.
• Limited credit agreement: This pertains to an agreement between the lender and broker that restricts the client's ability to obtain credit without their knowledge, granting the lender exclusive rights.