Millions of car finance customers set to receive compensation.

Banks may be required to identify victims and issue compensation automatically, eliminating the need for claims.

Millions of drivers are set to receive automatic compensation following the unveiling of a mass redress scheme in response to the motor finance mis-selling scandal.

The Financial Conduct Authority (FCA) is preparing to launch an industry-wide compensation initiative involving multiple banks, ensuring motorists who may have been mis-sold car loans are repaid automatically.

Crucially, the scheme aims to bypass claims management companies by making banks responsible for identifying affected customers. This means compensation would be issued without the need for customers to submit claims.

Currently, drivers must actively file a claim against a bank to seek redress. However, the FCA has been investigating the widespread practice of banks paying car dealers undisclosed commissions for arranging loans for over a year. During this time, compensation claims have been paused while the regulator determines who may have been affected.

On Tuesday, the FCA acknowledged that it would consider a mass compensation scheme if it confirms that customers suffered financial losses.

Originally scheduled for release before May, the watchdog’s final plans are now expected later this year. Meanwhile, a key Supreme Court ruling next month is set to determine whether motorists were indeed mis-sold car loans.

While judges will rule on the broader question of whether all car loans were mis-sold, the FCA is concentrating on a specific subset of loans.

This includes discretionary commission arrangements, where car dealers received bonuses for selling loans with higher interest rates.

Major banks, including Lloyds and Close Brothers, have been forced to allocate tens of millions of pounds to cover potential compensation costs. Last month, Lloyds’ total provision for the motor finance scandal surpassed £1 billion, while Close Brothers set aside £165 million.

Molly Preleski of PA Consulting noted: “An industry-wide redress scheme should ensure that consumers who have suffered losses receive compensation without needing to file complaints.

“It will also help firms distinguish between genuine cases and speculative complaints—whether from individual customers or claims management companies—where loan agreements were not actually impacted by these issues.”