The Financial Conduct Authority is finalising details on the scheme, which would see people receive an estimated £700 per agreement, on average. This is likely to cost lenders up to £8.2bn in compensation.

The scheme is redress for customers who bought cars using motor finance agreements with hidden commissions, which were not disclosed at the time of purchase, and follows a Supreme Court decision earlier this summer.

Nikhil Rathi, chief executive of the FCA, said: ‘Many motor finance lenders did not comply with the law or the rules. Now we have legal clarity, it’s time their customers get fair compensation. Our scheme aims to be simple for people to use and lenders to implement.’

The FCA scheme would cover motor finance agreements taken out between 6 April 2007 and 1 November 2024 where commission was payable by the lender to the broker.