British drivers could lose out on compensation from car finance scandal under new proposals

It found that firms broke laws and deliberately mis-sold motor finance agreements to drivers since they were not told about commission agreements when taking the deal out.

The regulator confirmed last year that it would consult on how the scheme could operate, with estimates suggesting that drivers could receive around £8.2billion, or roughly £700 per agreement.

However, reports from the Financial Times suggest that the FCA's climbdown could cut up to £1billion from the compensation owed by carmakers through in-house lenders.

Under a fresh exemption that could be introduced soon, loans that were provided by the in-house lender for a carmaker would not be affected.

These so-called "tied agreements" are believed to have impacted 3.2 million motorists, while around £1.2billion is linked to these deals.

Many of the largest manufacturers have in-house lenders associated with the brands, with some setting aside hundreds of millions of pounds ahead for the compensation scheme.

Banks and financial experts have warned the FCA that the compensation scheme could hammer the industry with billions of pounds worth of charges.

The FCA originally announced the terms of the redress scheme following a Supreme Court decision in August, as it aimed to minimise any impact on the financial market.

It stated that the redress scheme should provide consumers with "timely and fair" compensation if they were mis-sold car finance.

The regulator also acknowledged that any scheme should "protect the integrity of the market", with "limited disruption to competition".

A spokesperson for the FCA said: "We're carefully considering feedback and decisions on final scheme rules have not been taken."

Citing two people briefed on the proposals, the Financial Times reported that carmakers' in-house finance arms could be exempted from paying compensation to "at least some customers".

Adrian Dally, director of motor finance at the Financing and Leasing Association (FLA), claimed that there was "no loss" to consumers in that segment of car finance.

He added: "Captive finance companies’ aim is to help consumers buy their manufacturer’s cars.

“The best way to get consumers to buy more cars is to have very cheap finance - low interest rates or zero per cent interest rates."

The FCA and Solicitors Regulation Authority recently issued a warning to firms representing car finance claims to ensure drivers are not unfairly charged.

It called on firms to ensure that consumers don't have multiple representatives for the same claim, and are not charged "excessive" termination fees.

Sheree Howard, executive director of authorisations at the FCA, said claims management companies are expected to only apply fees if they are reasonable and accurately reflect any work done.