Millions of victims of car finance mis-selling could receive less compensation than previously estimated, under plans from the regulator.

The Financial Conduct Authority (FCA) said payouts could result from 14 million motor finance agreements between April 2007 and November 2024.

The regulator previously suggested motorists could receive less than £950 per deal, but it now says the average will be about £700. Lenders could pay out £8.2bn in compensation.

The payouts are over commission arrangements between lenders and dealers, unfair contracts, and inaccurate information given to car buyers.

“It’s time their customers get fair compensation,” Nikhil Rathi, chief executive of the FCA, said.

“We recognise that there will be a wide range of views on the scheme, its scope, timeframe and how compensation is calculated. On such a complex issue, not everyone will get everything they would like.”

The scheme would be free to access for consumers.

A ruling at the Supreme Court in August limited the breadth of these cases.

The vast majority of new cars, and many second-hand ones, are bought with finance agreements.

About two million are sold this way each year, with customers paying an initial deposit, then a monthly fee with interest for the vehicle.

In 2021, the FCA banned deals in which the dealer received a commission from the lender, based on the interest rate charged to the customer. These were known as discretionary commission arrangements (DCAs) and meant drivers were at risk of overpaying for the loan.

Other car buyers had an unfair contract because the commission paid to the dealer was so high, and some were not given accurate information about getting the best finance deal.

The regulator has now proposed a scheme to compensate drivers who were subject to these arrangements. If it gets the go-ahead, once the scheme starts:

• lenders will contact those who have already complained. If they don’t hear back after one month, lenders will assume they should look at the case and pay compensation if appropriate
• those who have already complained before the scheme gets up and running are likely to receive compensation faster
• those who have not complained will be contacted by their lender within six months of the scheme starting. People will be asked if they want to opt in to the scheme to have their case reviewed. They will have six months to decide
• those motor finance borrowers who do not receive a letter, for example because lenders no longer have their details and cannot trace them, will have a year from the scheme starting to make a claim

The regulator admitted that consumers can choose not to take part in the FCA’s compensation scheme and instead go to court, where they may get more or less compensation, based on the facts of their case.