Millions of drivers who were mis-sold motor finance agreements should receive compensation this year, averaging around £829 per person, under plans by the regulator.

The Financial Conduct Authority (FCA) has set out its proposal for a redress scheme totalling £9.1bn, which will see fewer loan agreements eligible for compensation.

Some 12.1 million motor finance deals will meet the new criteria, down from initial estimates of 14.2 million.

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

The regulator said firms are expected to pay £7.5bn to people who took out eligible motor finance deals. The administrative cost of the scheme is forecast to reach £1.6bn, taking the total cost for lenders to £9.1bn.

The proposal could still be challenged by lenders and lawyers.

But the FCA said: "We expect everyone to get behind the scheme, and lenders to put things right promptly for their customers."

The long-running multi-billion-pound saga involves car finance deals that were made between April 2007 and November 2024.

Many of these loan agreements included discretionary commission arrangements (DCAs) where a car dealer received a fee from lenders based on the interest rate charged to the customer.

This arrangement was often not disclosed and the FCA said it provided an incentive for a buyer to be charged higher interest rates than necessary, leaving them paying too much.

In 2021, the FCA banned these deals and on Monday, it said: "We need to draw a line under the past and support a healthy motor finance market for the future."

The regulator's central compensation scheme allows people to complain and potentially receive compensation for mis-sold deals, without the need for a lawyer or to go through the courts.

Some may still decide to take a legal route.

Major lenders have set aside tens of millions of pounds to cover the cost of compensation.

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