Millions of UK drivers who took out car finance over the past two decades could now be in line for sizeable refunds after regulators and courts found widespread problems with the way deals were sold. For some, the potential payback runs into thousands of pounds, especially where high interest rates were quietly inflated to generate hidden commission. As the compensation machinery cranks into gear, motorists who used popular products like PCP and Hire Purchase are being urged to check whether their agreement falls within the emerging redress schemes.
At the heart of the issue are “discretionary commission arrangements”, where brokers and dealers could increase the interest rate and pocket a bigger commission without the customer understanding how their cost was being set. Regulators have since banned this practice, and a combination of regulatory action and a landmark Supreme Court ruling has opened the door to mass claims. Anyone who used finance to buy a car, van or motorbike since the mid 2000s now needs to understand how the scheme will work and what steps to take to protect their place in the queue.
How mis-sold car finance happened and who is covered
Investigations by the Financial Conduct Authority found that many lenders and dealers used discretionary commission arrangements on products such as PCP and Hire Purchase, which meant the broker could increase the interest rate to earn more commission while the customer paid more each month. The regulator has explained on its dedicated guidance for car finance complaints that this created an obvious conflict of interest, since the person arranging the loan had a financial incentive to recommend a more expensive deal. In many cases, customers were never told that the interest rate was negotiable or that the broker’s pay depended on pushing it higher, which is why these arrangements are now being treated as potential mis-selling.
The scale of the problem is reflected in the fact that The FCA has consulted on a dedicated motor finance consumer redress scheme to deal with millions of affected agreements. Guidance from consumer bodies suggests that drivers who bought a car on HP or PCP between April 2007 and November 2024 could fall within the scope of the proposed scheme, provided their deal involved a discretionary commission arrangement. A detailed explainer for motorists sets out that the Supreme Court has now ruled on key issues around how these commissions operated, and that if a consumer bought a car, van or motorbike on PCP or Hire Purchase between 6 April 2007 and later years, their agreement may be in line for review under the emerging framework described in specialist coverage of mis-sold car finance.
What the Supreme Court and regulators have decided
The Supreme Court’s involvement has been central because it clarified when a lender or broker has breached duties owed to the customer in relation to undisclosed commissions. Reporting on the judgment explains that the court examined how PCP and Hire Purchase contracts were structured and whether consumers were given enough information to make an informed choice about the cost of borrowing. By confirming that certain non-disclosures and conflicted commission models can justify compensation, the Supreme Court effectively cleared the path for a coordinated approach to redress, rather than leaving each driver to fight a separate legal battle.
In parallel, regulators have moved from investigation to implementation. The FCA has already banned new discretionary commission arrangements, and its consultation paper CP25/27 on the motor finance consumer redress scheme set out how lenders might be required to review past agreements and pay refunds where harm is found. That consultation is now closed, and the regulator has indicated that, if it proceeds, a policy statement would be published as part of the next steps described in CP25/27. Coverage of the Supreme Court ruling notes that regulators are now moving into the implementation phase, working out how to calculate fair payouts and how long firms will have to contact customers and process claims, with one analysis highlighting that regulators move into the implementation stage with a focus on this being a fair deal, as set out in reporting on regulators move into.
How much drivers could receive and how to claim
Consumer campaigners have suggested that the total compensation bill could run into tens of billions of pounds, with individual drivers often due hundreds and in some cases thousands. One widely shared analysis of the proposed scheme suggests that the average payout could be around £700 per agreement where a discretionary commission arrangement is found, with that figure described as the typical redress for a DCA in a detailed video that explains that under the new redress scheme that has been announced the average payout is estimated to be £700 per arrangement for a DCA. Other commentators have talked about a potential total pot of up to £18 billion for mis-selling, reflecting how many Motorists used car loans or finance agreements that may now be reviewed, as discussed in coverage of millions likely due a share of up to 18 billion pounds in car finance claims.
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