Car finance scandal: How much could you be owed under FCA compensation plans?
The widespread failure by motor finance firms to properly disclose commission payments created a significant consumer issue known as the Car Finance Scandal. Therefore, the Financial Conduct Authority (FCA) has proposed an industry-wide redress scheme to provide car finance compensation.
Consequently, millions of motorists who used Hire Purchase (HP) or Personal Contract Purchase (PCP) agreements between April 2007 and November 2024 may be owed money.
Financial Conduct Authority
The FCA, which is the UK’s financial regulator, confirmed that a simple, free car finance compensation scheme is the best way forward. In fact, the scheme aims for an orderly and efficient process for consumers. FCA Chief Executive Nikhil Rathi confirmed that many motor finance lenders did not comply with the law.
Moreover, this collective approach is considered more cost-effective for firms, as it removes extensive legal and administrative complexity. This FCA car finance update indicates the regulator’s commitment to resolving the issue quickly.
What did the Supreme Court rule?
The legal foundation for this scheme was clarified by the Supreme Court in August 2025. Indeed, while hidden commissions were not automatically deemed unlawful, the Court upheld one complaint, the Johnson case.
Specifically, this complaint succeeded because of the extremely high commission charge (55% of the loan costs) and the non-disclosure of an exclusive commercial tie between the lender and the dealer.
Conversely, the FCA utilizes the principle of an “unfair relationship” under the Consumer Credit Act 1974 to offer mass redress. The ruling limited the scope for mass claims, asserting that all secret commissions were unjust.
Mis-sold car finance, who will get compensation, and how will it be paid?
Consumer protection is central to the scheme. Essentially, compensation will be paid to customers whose motor finance agreements were deemed unfair due to inadequate disclosure. Furthermore, the FCA estimates that 14 million agreements could be eligible for compensation; this represents 44% of all motor finance deals since 2007.
What is a DCA?
A Discretionary Commission Arrangement (DCA) was a specific, hidden type of commission structure. Consequently, this arrangement allowed the broker (typically the car dealer) to adjust the interest rate, enabling them to earn a higher commission.
This practice resulted in many customers unknowingly overpaying for their car finance. DCAs were banned by the FCA in January 2021.
How do I know if I am eligible for DCA compensation?
Eligibility is primarily based on agreements from April 6, 2007, to November 1, 2024, where commission was paid. Therefore, you may be eligible if you were not told about one of three key features: a DCA, a high commission arrangement (over 35% of the credit cost and 10% of the loan), or a contractual tie giving the lender near-exclusive rights.
Motorists
Motorists who believe they were affected by these undisclosed arrangements should act now. However, the majority of motor finance agreements will not qualify for compensation under the scheme.
In addition, checking old paperwork is the best way to determine if your agreement included a DCA. Alternatively, you can ask your lender directly for confirmation.
At a glance: what you need to know
The FCA’s proposed compensation methodology aims for simplicity and balance, leading to a projected total cost for lenders of £8.2 billion. Moreover, the average payout is projected to be about £700 per agreement.
Significantly, FCA car finance compensation will be calculated using an economic proxy. An estimated 17% adjustment factor derived from extensive analysis of 230,000 agreements, as compensation for the average financial detriment suffered by consumers.
Therefore, approximately £170 could be returned for every £1,000 of interest paid; this average estimate is lower than figures previously suggested, but provides guaranteed, high-volume redress.
Did my car finance agreement include a DCA?
As a result, if your provider cannot locate the old finance documents, you may need to provide proof of the deal. For instance, old bank statements or credit reference files showing the payments could be accepted as evidence.
Should I submit a complaint?
Yes, submitting a complaint now is strongly advised, even though a scheme is proposed. Consequently, if you submit a complaint now, you are placed into a category expected to receive compensation faster once the scheme launches. Indeed, a template letter is available on the FCA’s website to help you complain to your lender.
Compensation
Compensation for these mis-sold motor finance deals is expected to be paid out quickly through the FCA car finance compensation scheme. Furthermore, in the rare cases of extremely high, non-disclosed commission, consumers may receive compensation based on the full commission plus interest. This approach is used to reflect the most severe losses. The interest paid on redress will be lower than that offered during the PPI scandal.
What happens next?
The consultation on the redress scheme is expected to close in November 2025. Consequently, the FCA aims to publish final rules and launch the scheme in early 2026, meaning compensation payments could begin later that year. However, the lending industry has voiced concerns, arguing that the FCA is “overcompensating.”
When could I get the money and how?
If you have already complained, lenders will contact you within three months of the scheme starting. In contrast, if you have not complained yet, lenders will contact you within six months, but you must actively opt in to have your case reviewed.
Furthermore, borrowers who are not contacted within six months, perhaps because their details cannot be traced, will have one year from the scheme’s start date to make a claim directly to their lender.
Key Logistical Challenges and Industry Reservations
The proposed FCA car finance compensation scheme, going back to 2007, faces feasibility concerns from the Finance & Leasing Association (FLA). Specifically, the FLA noted that firms were not required to keep comprehensive commission data for such a long period, resulting in a “patchy evidence base” that makes precise, individualized loss calculations impossible.
Therefore, the FCA mandated a standardized compensation formula, like the 17% economic proxy, to manage historical data gaps and ensure broad redress while maintaining administrative feasibility for the industry.
The table below summarizes the key choices available to consumers seeking redress:
Pathway |
Redress Basis |
Consumer Action |
Risk/Reward Profile |
Binding on Firm? |
| FCA Redress Scheme | Fixed, standardized calculation (e.g., 17% proxy) | Wait to be contacted, Opt-in required for prior rejected claims | Lower risk, fast-tracked resolution, average payout (£700) | Yes |
| Financial Ombudsman Service (FOS) | Fair and Reasonable (Guided by scheme rules) | Complaint already submitted to FOS | Low risk, bespoke outcome possible, free | Yes |
| Court Action (CCA s. 140A) | Judicial determination of full loss | Opt out of the scheme, commence litigation | Highest potential reward, highest cost/risk, slow | Yes |
Why should I avoid using a claims management company or law firm?
You should avoid using a claims management company (CMC) or law firm because the scheme is designed to be free and simple for consumers. Moreover, these firms typically take a large percentage, up to 30%, of any car finance compensation you are owed.
Therefore, using a firm will not speed up the process and will only result in you losing a significant portion of your compensation. Martin Lewis of Money Saving Expert (MSE) has repeatedly warned against paying fees, stating that the payout is near-automatic, making CMCs unnecessary for the Martin Lewis car finance compensation process.
What if I’ve already signed up to use a claims management company or law firm?
If you have already signed a contract, a cancellation fee may be required if you decide to pull out. However, this fee should be fair and proportionate to the work that has already been completed. If you are unhappy with the firm’s response or its fees, you can file a complaint.
Specifically, complaints about CMCs are handled by the Financial Ombudsman Service (FOS), which acts as the Claims Management Ombudsman. Conversely, complaints about solicitors or law firms should be directed to the Legal Ombudsman.
Beware of scams
The high profile of this compensation scheme has, unfortunately, attracted scammers. Therefore, consumers must remain vigilant. Crucially, the FCA will never ask you for money up front, nor will genuine companies ask for sensitive details like full bank passwords via unexpected calls or emails.
In fact, the FCA has already acted to take down over 700 deceptive adverts from firms seeking to profit from the scheme. As a result, you should safely ignore and report any suspicious messages.
Conclusion
The FCA car finance compensation scheme offers a clear path to redress for millions. Therefore, eligible customers should complain now to accelerate their claim and avoid unnecessary fees by following the free process advised by the FCA and Martin Lewis’ car finance guidance.
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