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The Financial Conduct Authority (FCA) has confirmed how it plans to compensate people affected by the car finance scandal.
The scheme follows a Supreme Court ruling and the FCA’s conclusion that some lenders broke consumer law, while others failed to properly disclose commission payments to car dealers.
If you were overcharged, often because of discretionary commission arrangements (DCAs) and other commission types, you could be in line for compensation. The average payout is expected to be just over £800, which is higher than earlier estimates.
Here’s what you need to know about the car finance scandal, including how the scheme works, whether you’re eligible and what to do next.
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Around 2m new car and second-hand car deals each year are bought using car finance agreements. These deals usually involve paying an initial deposit, followed by monthly instalments with interest.
Before 2021, many lenders used Discretionary Commission Arrangements (DCAs), which allowed brokers and dealers to hike interest rates to earn higher commission – around 40% of car finance deals were believed to have DCAs.
The FCA found that this created a clear incentive for you to be charged more than necessary, increasing the overall cost of your loan. It banned DCAs in January 2021, although complaints about overcharging had already started to emerge before then.
In 2024, the FCA launched an investigation into whether customers were overcharged between April 2007 and January 2021. This followed a Financial Ombudsman ruling against Barclays over unfair commission payments.
At the same time, a separate court case involving Close Brothers and FirstRand Bank examined whether undisclosed commissions rendered finance deals unlawful. Although the Court of Appeal initially ruled against the lenders, the Supreme Court later overturned that decision.
This means hidden commissions aren't automatically unlawful and the compensation scheme will focus mainly on DCAs rather than all car finance deals.
Since launching its consultation in October, the FCA has made several changes to its plans after feedback from consumers, firms and industry bodies.
Fewer agreements will now qualify, with around 12.1m expected to be eligible, down from 14.2m. At the same time, the average compensation has increased for older agreements, and a minimum interest rate of 3% a year has been added to payouts.
If you’ve already complained to your lender, you don’t need to do anything else for now. Lenders will review your case automatically and should tell you within three months whether you’re owed compensation.
If you haven’t complained yet, lenders are expected to contact eligible customers directly, usually via email or other digital channels, provided proper fraud checks are in place.
You can still make a complaint yourself by contacting your lender. If you’re unsure who your lender was or you’ve lost details of your agreement, the FCA has guidance to help you track this down.
If you think you've been affected by car finance mis-selling, see our guide on how to complain about a commission arrangement on a car finance loan. You can also use our free template letter to submit your complaint.
Car finance loans taken out between 6 April 2007 and 1 November 2024 are covered by the FCA compensation scheme if you were not clearly told that:
However, you can't claim for this final point if there was a clear, visible link between the lender and the car manufacturer, such as having a similar name.
You may not be eligible for compensation if your case is considered fair based on these exceptions:
Claims for high-value loans – amounts higher than 99.5% of other loans that year – aren't covered by the scheme. However, these consumers can still complain to firms and the Financial Ombudsman Service (FOS) .
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The FCA says the average payout is likely to be around £829. If you had more than one finance agreement during this period, you could receive multiple payments.
For most people, the compensation will have two parts:
Interest will also be paid on compensation, based on the annual average Bank of England base rate per year, plus 1%, at a minimum of 3% in any year.
The FCA has said that compensation won’t put you in a better position than if you’d been treated fairly in the first place. Because of this, some payments will be capped, with around one in three cases affected.
Overall, the FCA estimates the scheme could cost around £7.5bn if 75% of eligible customers make a claim.
If you use a claims management company (CMC), you’ll need to give part of your payout to that firm if your claim is successful. This could be as much as 30% of any award.
The FCA has joined with the Solicitors Regulation Authority, Information Commissioner’s Office and Advertising Standards Authority to launch a taskforce to tackle poor handling of motor finance claims by CMCs and law firms.
The regulator noted that it had already removed or amended 800 misleading adverts, helped more than 28,000 consumers exit contracts free of charge, and reduced the high fees charged by three CMCs – protecting more than 500,000 consumers.
If you're using one, the FCA said that the companies must inform you of the regulator's redress scheme. They must also alert you to all charges and must be clear on exit fees.
There will be a short implementation period so firms can prepare before compensation payouts begin. This will be up to:
Once the preparation period ends, lenders have three months to tell you if you're owed money and how much you will get.
If you’ve already complained, or you submit a complaint before the relevant deadline, you’re likely to be paid sooner. Lenders will only contact people who haven’t complained if they believe that compensation is due. They will have six months after the preparation period ends to do this.
The FCA says that this approach is designed to avoid unnecessary or confusing messages being sent to people who aren’t eligible. If you’re not contacted, you’ll still have until 31 August 2027 to make a claim.
Firms have until 5pm on 27 April to file a complaint, which could potentially delay payouts even more.
You don’t have to take part in the FCA’s compensation scheme if you don’t want to. You also have the option of taking your case to court.
The regulator says those who take their case to court could receive a larger compensation payment, although the outcome would depend on the facts of each case and could involve legal costs.
The FCA noted that its compensation scheme will be faster and simpler than pursuing legal action.
This story was first published on 16 January 2024. It was last updated on 31 March 2026.
