City watchdog investigates 30m car loans for compensation payouts

Core Viewpoint - The Financial Conduct Authority (FCA) is investigating around 30 million car finance loans for potential mis-selling, with a compensation scheme expected to launch in 2026 [1][2]. Group 1: Investigation and Compensation Scheme - The FCA is examining car finance agreements taken out between 2007 and 2020 to determine if they were mis-sold and qualify for compensation [1][2]. - Approximately 14 million of the 30 million agreements are likely to be eligible for the compensation scheme [2]. - The FCA's redress scheme is based on a Supreme Court ruling that found certain motor finance agreements unlawful, particularly regarding undisclosed commissions paid to car dealers [4]. Group 2: Nature of Mis-selling - The investigation includes discretionary commission agreements (DCA), which are bonuses paid to car dealers for increasing loan interest rates, and which were banned in 2021 [3]. - A significant proportion of these agreements are believed to have breached disclosure laws, leading to unfair relationships between lenders and consumers [3][5]. - The FCA has indicated that many consumers were not adequately informed about the terms of their loans, potentially resulting in unfair interest rates [5]. Group 3: Financial Implications - The FCA estimates that most individuals may receive less than £950 in compensation, with the total cost of the compensation scheme projected to be between £9 billion and £18 billion [6].