Car finance mis-selling scandal: compensation scheme timeline explained amid legal challenges
Affected by the car finance mis-selling scandal? Want to know how to claim? Here's what you need to know...
In March 2026, the UK’s financial regulator, the Financial Conduct Authority, published its plans for a compensation scheme in order to address the ongoing car finance scandal. This follows a Supreme Court decision in 2025 which generally ruled in favour of consumers, paving the way for what’s anticipated to be around £7.5billion in payouts, coming at a total cost to the car finance industry of more than £9.1billion.
As is often the case with legal disputes, it’s not quite as straightforward as it might seem; challenges from both sides mean the scheme we see now looks vastly different from what had originally been expected when the scandal began picking up pace. This might leave you with questions such as:
- Am I eligible for compensation?
- How much might I get?
- Should I use a car finance claims company?
- When might the payments arrive?
Our handy guide to the scandal below explains it all, as well as looking at how the situation started in the first place.
Who’s in line for compensation?
As part of its final redress scheme proposal, the Financial Conduct Authority (FCA) has outlined three types of people who are eligible for compensation:
- Those who signed up to a discretionary commissions arrangement (DCA).
- Those who signed up to a finance deal with excessively high commission (in excess of 39 per cent of the total cost of credit and 10 per cent of the loan) but were not informed.
- Those who signed up to an agreement with a broker who had already given exclusive first rights to a specific lender to provide the credit, without that being made clearly visible.
Any agreement that matches those listed above must have been signed between 6 April 2007 and 1 November 2024 to be eligible. In total, this is generally thought to represent roughly 44 per cent of Personal Contract Purchase (PCP) and Hire Purchase (HP) agreements throughout this period.
Furthermore, if commission paid to the broker as part of a DCA totalled less than £120 (prior to 1 April 2014) or £150 (post 1 April 2014), then the agreement is deemed to be fair and thus won’t be eligible for compensation. This FCA says that this is because “those levels are unlikely to have influenced the consumer’s decision or broker’s behaviour”. Zero per cent interest finance agreements are also exempt from redress.
Furthermore, if commission paid to the broker as part of a DCA totalled less than £120 (prior to 1 April 2014) or £150 (post 1 April 2014), then the agreement is deemed to be fair and thus won’t be eligible for compensation. This FCA says that this is because “those levels are unlikely to have influenced the consumer’s decision or broker’s behaviour”. Zero per cent interest finance agreements are also exempt from redress
Regardless, DCAs were outlawed in 2021, so it’s unlikely that anyone signed up to one after that. However, there have since been cases of car buyers paying excessive commission and brokers being given exclusive rights by lenders, hence the broader eligibility up to 2024.
How much will I receive in car finance compensation?
The FCA estimates that average payout from the car finance scandal will total £829 per agreement. Those who signed up to more than one “unfair” agreement will receive payments for each and thus will be entitled to more.
To be a little more specific, consumers will be compensated the equivalent of 17 per cent of what they originally paid in interest for any eligible finance deal signed after 1 April 2014, or 21 per cent for any agreements prior. Therefore, if a borrower had paid £3,000 in interest on a car loan, then they would receive £510 or £630 respectively.
Furthermore, those who paid levels of commission equal to or above half the cost of credit and 22.5 per cent of the total cost of the loan will receive both the interest and commission they paid back. That would equate to a lot more cash than the average payout, although this is only expected to be the case for roughly 90,000 claimants.
However you look at it, the average payout is still less than what was originally expected. When the issue first came to light, the general consensus was that motorists would receive around £950 per agreement. This has prompted consumer group Consumer Voice to prepare a legal challenge against the FCA, claiming that “in its current form, [the redress scheme] could leave millions of consumers out of pocket by hundreds of pounds per claim”.
Will I have to contact my lender?
In most cases, those affected by the mis-selling of car finance will not have to contact their lender; following a consultation with the industry and affected parties, the FCA has provided lenders with an “implementation period”. In effect, this means that they have until 30 June 2026 to contact consumers, rising to 31 August for older agreements signed prior to 1 April 2014.
We do, however, recommend that you file a complaint – tools to draft one can be found on websites such as MoneySavingExpert. This is because there is always the risk (particularly for older agreements, or those signed prior to getting married or moving house) that the finance firm no longer has your details and thus won’t be able to get in touch with you.
For customers that have already complained, firms will have three months from the end date of the implementation period to let them know if they’re due compensation and if so, how much. Once you have received an offer of compensation, you’ll be able to agree to this immediately, rather than awaiting a final decision.
For those who have yet to complain, lenders will instead have six months to contact them, after which customers will have another six months to accept whether they wish to join the redress scheme. If you’re not contacted in this period but still believe you might be due compensation, you have until 31 August 2027 to register a complaint.
Recent changes to the plans mean lenders won’t have to write to each potential claimant via signed delivery in order to reduce cost pressures on the industry. It’s also worth mentioning that consumers can choose not to take part in the redress scheme and go to court. This could potentially lead to them receiving even more compensation, but success is far from guaranteed and the process could be time-consuming and costly.
Should I use a car finance claims management company?
Car finance claims-management companies (CMCs) have been plastering the TV and internet with advertisements for their services, however, the FCA advises consumers to avoid using them given the nature of the scheme; lenders are being told to contact claimants themselves, meaning utilising one of these claims firms in effect means superfluously giving up a potentially large proportion of your compensation.
The FCA also says that if you absolutely insist on signing up with one of these firms, make sure not to subscribe to more than one; doing so could mean you’d have to pay each one their share of your compensation, potentially leaving you with nothing. With this in mind, the FCA has instructed claims firms to allow consumers to terminate their agreements “without charging unfair fees”.
Now, however, the FCA has joined forces with the Solicitors Regulation Authority (SRA), Information Commissioner’s Office (ICO) and Advertising Standards Authority (ASA) to investigate and tackle malpractice from claims management firms. The taskforce will keep an eye out for issues regarding multiple representation, as well as misleading advertising and pressure selling.
The FCA says it will also launch a review into the claims management market in general. The regulator’s director of consumer finance, Alison Walters, explained: “CMCs and law firms can help consumers secure compensation they are owed. But too often consumers are being let down, eroding trust in firms that should be supporting them and damaging the economy.
“This review will give us a clear picture of how the market is working and galvanise the further actions that are needed.”
When will I receive compensation?
The FCA has not confirmed any exact dates as to when payouts will begin, but it has confirmed that “millions of consumers will be compensated this year, most of the rest by the end of 2027”.
Don’t bank on it, though, because it’s always possible this timescale could be pushed backwards, or the redress plans redrawn due to legal challenges. While the Finance and Leasing Association (FLA) has since confirmed that it won’t raise a challenge to the FCA’s proposals, despite having “concerns” about many of the details – the same goes for Barclays and Santander – the redress scheme has still been challenged by Volkswagen Financial Services, Mercedes Benz Financial Services, and Crédit Agricole Auto Finance.
Curiously, there have also been some challenges from the other side of the argument. Consumer advocate group, Consumer Voice, has launched an appeal against the FCA’s plans, claiming that the current proposal “protects the very firms that failed to follow the law and the rules when these loans were sold”. The FCA, on the other hand, has doubled down, stating it will “defend the scheme robustly as lawful and the best way to resolve such a widespread, long-running and complex issue”.
Car finance scandal: the background
The origins of the car finance scandal can be traced back to the beginning of 2024 when the FCA announced that it was launching an investigation into what’s known as Discretionary Commission Arrangements (DCAs).
Outlawed in 2021, DCAs essentially involved lenders artificially inflating interest rates in order to provide the car dealer with additional commission, thus pushing up the cost of finance for the customer. This, according to experts, was the case in roughly 40 per cent of finance deals between 2017 and 2021, costing consumers as much as £500million per year more than with flat commission rates.
Everything came to a head after a Court of Appeal case between customers and some of the UK’s largest lending firms. The judge ruled that any part of a finance deal involving commission that’s not overtly outlined and agreed to by the consumer is unlawful.
This decision sent shockwaves through the car industry because it meant almost all car finance deals from 2007 could be affected, leaving the customer eligible for compensation. Experts originally estimated that as much as £40billion could be up for grabs in redress payments.
However, in early August 2025, the UK’s highest court, the Supreme Court, overturned the Court of Appeal’s judgement, claiming that dealers do not have a fiduciary duty to act in their customer’s interest, rather than their own.
Lord Reed, the President of the Supreme Court, delivered the judgement, saying: “At no point did the dealer give any kind of express undertaking or assurance to the customer that in finding a suitable credit deal it was putting aside its own commercial interest as seller.”
However, as part of the same case that covered the undisclosed commission, the Supreme Court upheld a ruling surrounding what was deemed an “excessive” amount of commission. In this instance, commission paid to a dealer accounted for as much as 55 per cent of a car finance loan – something that has now been ordered to be paid back to the customer.
Following this, the FCA said it would consult on an official redress (compensation) scheme. This consultation has since ended and this brings us up to now, with the FCA having submitted the final redress scheme proposal.
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