Nearly half (44%) of all car loan agreements made since April 2007 up to November 2024 could be eligible for payouts, the Financial Conduct Authority (FCA) said.
Those eligible for the compensation will have had a loan where the broker received commission from a lender.
Lenders broke the law by not sharing this fact with consumers, the FCA said, and customers lost out on better deals and sometimes paid more.
A scheme is seen by the FCA as the best outcome for consumers and lenders, as it avoids the courts and the Financial Ombudsman Service, therefore minimising delay, uncertainty and administration costs.
Anyone who may have been impacted has been advised to complain to the institution that lent them the money.
The scheme will cost about £8.2bn, on the lower end of expectations, which had been expected to reach as much as £18bn.
Anyone who believes they have been impacted should contact their lender. Compensation will begin to be paid in 2026 with an exact timeline yet to be worked out.
