Millions of drivers could share up to £18bn from car finance scandal
The Financial Conduct Authority (FCA) said drivers that could be paid as early as next year, with lenders on the hook for any redress scheme.
It comes after a Supreme Court decision on Friday on cases in which the FCA had intervened.
Many companies that provided loans for people to buy cars failed to disclose details about the commission they had paid to dealers up until a crackdown in 2021.
While the Supreme Court largely overturned a ruling that these commissions were illegal, it said that in some circumstances lenders had acted unfairly.
The FCA said most motorists were unlikely to receive more than £950, but that the overall cost of the compensation scheme for lenders and other finance providers could be between £9bn and £18bn.
This is much lower than the £44bn some had feared if the court had ruled against them.
However, it is above estimates after last Friday's ruling, and better than many motorists might have hoped for, with some experts having warned that they could expect very little compensation after the ruling.
A total 31.7m motor finance agreements were issued between 2007 and 2021, with so-called 'discretionary commission arrangements' used in almost half of them.
Nikhil Rathi, chief executive of the FCA, said: 'It is clear that some firms have broken the law and our rules. It's fair for their customers to be compensated.
'We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal.
'Our aim is a compensation scheme that's fair and easy to participate in, so there's no need to use a claims management company or law firm. If you do, it will cost you a significant chunk of any money you get.
'It will take time to establish a scheme but we hope to start getting people any money they are owed next year.'
The FCA's announcement is likely to affect banks' share prices when markets open on Monday morning. The regulator had been rushing to put out a statement before trading began.
The authority said consumers who had already complained to their lender did not have to do anything, while those who had not yet complained should do so now.
It warned motorists against using a law firm or claims management company, which could take 30pc of any payout.
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