FCA confirms car finance compensation scheme: latest

If you bought a car, van or motorbike on finance between 6 April 2007 and 1 November 2024, you could be due compensation.
The Financial Conduct Authority (FCA) has now confirmed it will go ahead with a nationwide redress scheme for customers who were treated unfairly, following court rulings that found some lenders and brokers failed to properly disclose commission arrangements. It’s a complex issue, but we’ll break it down into what’s changed, what it means for you, and what happens next.

The FCA has finalised plans for an industry-wide compensation scheme, designed to handle claims quickly and consistently.
Around 12.1 million finance agreements could be eligible, with firms expected to pay out around £7.5 billion in total compensation. Most individual payouts are likely to be in the hundreds of pounds, with the FCA estimating an average of around £800 per agreement. Payments are expected to begin later in 2026, with most claims settled by the end of 2027.

At the centre of the issue is the relationship between three parties:
• the person buying the vehicle • the dealer supplying it (acting as a broker) • the finance company providing the credit The problem arose where dealers received commission from lenders without clearly explaining how that might affect the deal being offered. Commission is a standard way for dealers to earn money when arranging finance. The issue here is how that commission was handled and disclosed, not the fact it existed.

The scheme covers most common types of motor finance, including:
• Personal Contract Purchase (PCP) • Hire Purchase (HP) It applies to agreements arranged through a dealer or broker between April 2007 and November 2024.

You may be due compensation if you weren’t told about one of three types of commission arrangement:
Discretionary commission arrangements (DCAs) These allowed dealers to adjust the interest rate on a loan to earn more commission. These arrangements were banned in 2021, but the FCA is now reviewing agreements made before then. High commission deals Where commission was particularly large, with at least 39% of the cost of credit and 10% of the loan. ‘Tied’ lender arrangements Where a dealer suggested they would search for the best deal but didn’t disclose they had a preferred or exclusive lender.

Not all agreements will qualify, and you’re unlikely to receive compensation if:
• The commission involved was very small • under £120 (before April 2014) or £150 after • You had a 0% finance deal • The commission didn’t affect the outcome of your agreement • Your complaint has already been settled Some very high-value loans are also excluded from the scheme, although these can still be pursued separately.

The FCA expects most payouts to be in the hundreds of pounds, reflecting a standardised approach designed to deal with the scale of claims.
While the overall compensation pot runs into billions, this isn’t likely to translate into large individual payouts for most people. In a small number of serious cases where commission was particularly high and not disclosed, customers could receive all their commission back plus interest. For around one in three cases, compensation will be capped to ensure customers aren’t put in a better position than if they’d been treated fairly in the first place.

There will be a short implementation period before the scheme goes live:
• From 30 June 2026 for agreements from April 2014 onwards • From 31 August 2026 for earlier agreements Lenders will then begin contacting customers and issuing decisions, with the first payments expected later in 2026. Most compensation is expected to be paid by the end of 2027.

In most cases, no.
Under the FCA’s proposed model, eligible customers will be contacted directly by their lender and included in the scheme automatically. The scheme will work on an opt-out basis, meaning you’ll only need to take action if you want to pursue a claim through the courts instead. You can still complain now if you think you were affected, but you may prefer to wait until lenders begin contacting customers.

The FCA has been clear that most consumers won’t need to use a claims management company.
Because lenders will contact eligible customers directly, using a third party could mean giving up a portion of your compensation unnecessarily. A new joint taskforce led by the Financial Conduct Authority (FCA), alongside the Solicitors Regulation Authority (SRA), Information Commissioner’s Office (ICO), and Advertising Standards Authority (ASA) are also warning consumers how to protect themselves and avoid unnecessary costs or scams - learn more about that task force here.

Yes, car finance is still widely available.
You may find dealers are more transparent about commission, and you’re well within your rights to ask how any commission affects the deal you’re offered.

The implications of the Supreme Court ruling will take some time to digest but, broadly, it has seemingly decided that apart from in one specific case dealers and finance providers were acting lawfully. So, basically, it will be business as usual. You may, however, find you are provided with more information regarding any commission or payments retailers or brokers involved in vehicle finance receive in order to help you make an informed decision.
Speaking on behalf of lenders in his role as Director General of the Finance and Leasing Association, Stephen Haddrill told the BBC the ruling could end up making finance more complicated and therefore expensive for some consumers, especially those on lower incomes. How this shakes out remains to be seen.

This issue affects any circumstance where finance, through a broker or dealer, that has a discretionary commission arrangement included in the contract has been used to acquire vehicles such as cars, vans, camper vans and motorbikes between 2007 and 2021.

Whenever you look at a finance plan:
• Make sure you understand the interest rate and total cost • Ask whether the dealer receives commission • Compare deals where possible • Take your time and don’t rush into a decision

Now the scheme has been confirmed, lenders will begin preparing to contact customers and calculate compensation.
The FCA says the aim is to resolve claims quickly while maintaining a stable and competitive motor finance market.