Martin Lewis issues urgent warning to drivers as £7.5bn car finance payouts confirmed

The move follows a decision by the Financial Conduct Authority, which will oversee payouts to motorists who may have been mis-sold finance deals.

Drivers who bought cars using Personal Contract Purchase or Hire Purchase agreements between 2007 and 2024 could be in line for compensation. The average payout is expected to be around £830, although the exact amount will depend on individual cases.

Martin Lewis said the scheme could affect millions of people and explained how to apply in a video guide. He also confirmed drivers who have already complained may still need to take further action.

More than three million complaints have already been submitted using the free MoneySavingExpert tool since it launched in early 2024.

The FCA estimated the scheme will cover about 12.1 million finance agreements, which is lower than the original estimate of 14.2 million after stricter eligibility rules were introduced.

There are three main types of mis-selling included in the scheme. The first consisted of discretionary commission arrangements. These affected around 11.4 million agreements and allowed brokers or dealers to increase interest rates to boost their commission.

The second is where brokers had undisclosed links to certain lenders. Around 3.2 million agreements fall into this category, where customers were not told about exclusive relationships.

The third involved unfairly high commission charges. This applies to roughly 2.9 million cases where fees were extremely high, at least 39 per cent of total credit costs and 10 per cent of the loan amount.

The FCA has split the scheme into two time periods. One covers agreements from April 2007 to March 2014, while the second covers April 2014 to November 2024. This is designed to protect newer claims from potential legal challenges arising from older cases.

Responding to questions online, Mr Lewis reassured drivers that they could still be eligible even if only one type of mis-selling applied.

He also addressed concerns about payout limits, saying, "there are some caps in place," and promising to provide more details in his weekly email.

Importantly, he told one user, "it doesn't affect your credit score," confirming that making a claim will not harm your financial record.

For those who were previously told they did not have a discretionary commission arrangement, he advised trying again using the updated tool. It now includes all three types of mis-selling and could put people into a faster claims process.

Under the plans, lenders must contact customers who have already complained within three months of the scheme going live. Payments should then follow within a month if the offer is accepted. For more recent agreements from April 2014 onwards, the process will run until June 30, 2026. Older agreements have a deadline of August 31.

Lenders may still contact anyone who has not yet complained within six months if they are likely to be owed money, with the final deadline to make a claim being August 31, 2027.

However, both the FCA and the savings expert warned drivers to avoid using claims management companies, which often charge hefty fees of around 30 per cent plus VAT.

Mr Lewis said people who have already signed up to these firms should "check the small print carefully," as they could still be charged even if they switch to handling the claim themselves.

A joint taskforce involving the FCA and other regulators has already taken action against misleading adverts, removing or changing 800 promotions and helping more than 28,000 people exit contracts without paying fees.

FCA chief executive Nikhil Rathi said: "Payouts should not be delayed any longer, especially as household bills come under greater pressure."

He added that paying compensation quickly would help rebuild trust in the market and support the wider car finance industry.