Compensation payouts are due on around 12.1 million unfair motor finance deals, at an average of £829 each, the financial watchdog has said as it unveiled the final plans for its redress scheme.
Motorists are expected to get a higher payout than the £700 estimated under previous proposals by the Financial Conduct Authority (FCA).
But the final scheme will mean around two million fewer deals are eligible for compensation.
The regulator is expecting the total amount of redress paid under its scheme to be about £7.5 billion, lower than the previous £8.2 billion estimate, and based on about 75% of eligible consumers making a claim.
It thinks millions of claims will be paid out this year, and the vast majority settled by the end of 2027.
FCA chief executive Nikhil Rathi said: “We’ve listened to feedback to make sure the scheme is fair for consumers and proportionate for firms. It will put £7.5 billion back into people’s pockets.
“Now we need everyone to get behind it and ensure millions get their money this year.
“Payouts should not be delayed any longer, especially as household bills come under greater pressure.”
The FCA published the final details of its long-awaited redress scheme for people who were treated unfairly when they took out a motor finance agreement.
Most of the car finance deals covered involve so-called discretionary commission arrangements (DCAs), which were banned in 2021.
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This refers to arrangements whereby brokers, including car dealers, were able to increase interest rates on car loans so they could get more commission.
The FCA said this led to unfairness for customers who were not properly informed about the arrangement and therefore did not have the opportunity to negotiate or find themselves a better deal.
The programme covers agreements taken out between April 6 2007 and November 1 2024.
It has made changes to the format after receiving more than 1,000 responses to a consultation, including from motor finance lenders, consumer groups, carmakers and industry bodies.
The initial proposals drew criticism from both sides, with lenders and car finance providers raising concerns that the level of redress was too high and did not accurately reflect what customers lost, while consumer groups and some MPs argued that motorists would be short-changed under the plans.
The feedback has resulted in it tightening the eligibility criteria so only those who were treated unfairly will get compensation, according to the FCA.
People whose car finance deal involved minimal commission – £120 or less for agreements before April 1 2014, and £150 or less for after that date – are considered to be fair and therefore not eligible for compensation.