Millions of UK motorists could be in line for compensation following a long-running investigation into how car finance was sold over more than a decade.
If you bought a car on finance between 6 April 2007 and 1 November 2024, you may be eligible for a payout under a compensation scheme being developed by the Financial Conduct Authority (FCA) even if you no longer own the vehicle.
So what is the issue, who could be affected, and what should drivers do next?
What is the car finance issue about?
The controversy centres on how some car finance agreements were arranged and sold, particularly those involving commission payments between lenders and car dealers.
In many cases, these commissions were not properly disclosed to customers. One specific practice, known as a Discretionary Commission Arrangement (DCA), allowed dealers to increase the interest rate charged to a customer resulting in them earning more commission in the process.
How Much Compensation Could Be Paid Out?
The potential scale of the compensation scheme is significant. The Financial Conduct Authority (FCA) estimates that around 14 million motor finance agreements could be affected, with lenders potentially paying out around £8.2 billion in compensation.
Under current proposals, the average payout is expected to be about £700 per agreement, although the exact amount would depend on the details of each case.
Despite the sums involved, many drivers have so far held back from taking action. FCA research suggests that almost half of motorists who are aware of possible compensation have not yet made a claim. Around 46% say uncertainty over whether their agreement would be eligible has stopped them so far, while 24% say they are unsure how much compensation they might receive.
Who could be eligible for compensation?
Based on current FCA guidance, you may be eligible if:
- You used motor finance to buy a car, van or motorcycle
- The agreement was taken out between 6 April 2007 and 1 November 2024
- The finance was a Personal Contract Purchase (PCP) or Hire Purchase (HP) agreement
- Your agreement involved:
- a discretionary commission arrangement (DCA) you were not properly told about, or
- unfairly high commission, or
- a contractual tie between the dealer and lender that was not disclosed
You do not need to meet all of these conditions, meeting one criteria may be enough.
Leasing agreements such as Personal Contract Hire (PCH) are not currently included.
What is a Discretionary Commission Arrangement (DCA)?
A DCA was a hidden form of commission that allowed a car dealer or broker to increase the interest rate on a finance agreement.
The higher the interest rate, the more commission the dealer earned.
These arrangements were banned in January 2021, meaning no agreements taken out after that date should include a DCA. However, millions of earlier agreements did.
What Happens Next with the Compensation Scheme?
The same research highlights why the regulator is pushing ahead with a formal compensation scheme. More than eight in ten motorists (81%) who were considering making a claim said a clear compensation scheme would give them the confidence to proceed.
In response, the FCA has confirmed it will introduce an industry-wide compensation scheme, designed to make the process clearer and more consistent for drivers. The regulator also provides a free template complaint letter on its website to help motorists raise concerns directly with their lender.
Explaining the regulator’s position, 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.”
Final rules for the scheme are expected in early 2026, with compensation payments likely to begin from mid-2026 at the earliest. Drivers who have already complained are expected to receive a response sooner than those who have not.
Should you complain now?
The FCA’s guidance is clear:
If you believe you were not told key details about your car finance agreement, you should complain to your lender now.
Complaining is free, and lenders are required to consider whether you are eligible for compensation once the scheme is in place.
Do You Need a Claims Management Company?
The FCA and consumer groups have been clear that drivers do not need to use a claims management company or law firm to take part in the compensation scheme. Complaining directly to your lender is free, and claims companies cannot make the process quicker or increase the amount paid.
Many claims firms advertise “no win, no fee” services, but typically take up to 30% of any compensation awarded, potentially costing drivers hundreds of pounds unnecessarily. There are also warnings about scammers contacting motorists to demand upfront fees or personal details.
For most people, the FCA’s advice is straightforward: contact your lender directly, using the free complaint templates provided if helpful, and wait for further guidance once the scheme is in place.
Here’s what that process looks like in practice.
What You Should Do Instead
- Contact your lender directly
- Get in touch with the company that provided your car finance and tell them you want to complain about the way commission was handled on your agreement.
- Include basic details
- You don’t need legal language. Providing your name, address at the time of the agreement, vehicle registration number and the date the finance started should be enough to help the lender find your record.
- Use the FCA's free complaint template
- The FCA provides a free template letter to help motorists submit a complaint. Using it can make the process quicker and clearer.
- Wait for the scheme to begin
- Once the compensation scheme is finalised, lenders will be required to review eligible agreements and contact affected customers. Those who have already complained are expected to receive a response sooner.
For most drivers, this process is free and does not require legal advice.
What if you don’t know who your lender was?
If you’re unsure who provided your finance, you can:
- check old bank statements
- look for emails or letters relating to the purchase
- contact the dealer where you bought the car
- check your credit report, which may list past finance providers
- check your credit reference file at the Information Commissioner’s Office (ICO).
This information can help ensure you are included if you are eligible.
What the Compensation Scheme Means for Car Finance Customers
The FCA acknowledges that the compensation scheme will not be straightforward, given the number of agreements involved and the length of time covered.
Addressing expectations, Mr Rathi said:
“On such a complex issue, not everyone will get everything they would like. But we want to work together on the best possible scheme and draw a line under this issue quickly. That certainty is vital, so a trusted motor finance market can continue to serve millions of families every year.”
For drivers who took out car finance between 2007 and 2024, it may be worth checking paperwork and submitting a complaint now, as those who do are likely to be dealt with sooner once the scheme begins.
As with previous large-scale redress schemes, patience will be required but for many motorists, the potential sums involved could make it worthwhile.
Why Checking Finance Matters - Before and After You Buy
For many drivers, car finance agreements can be complex, and key details are not always clear at the point of sale. That is one of the reasons the current compensation scheme exists.
The same principle applies when buying a used car. Just as motorists are now being advised to check the terms of past finance agreements, it is also important to check whether a vehicle itself has any outstanding finance or previous issues attached to it before making a purchase.
Motorcheck UK allows buyers to look up a vehicle’s history before committing to a sale. A vehicle history check can reveal:
- whether a car has existing or past finance agreements
- mileage discrepancies
- whether the vehicle has been written off or reported stolen
Taking these steps can help buyers avoid unexpected problems later and reduce the risk of inheriting financial or legal issues tied to the vehicle.
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