If you took out car finance between 2007 and January 2021, you could be owed money because some lenders allowed dealers to earn undisclosed commission that may have pushed your interest rate up. The Financial Conduct Authority has set up a redress scheme covering many affected agreements, so some drivers should expect compensation and clear steps to claim it.
This post explains how the scandal happened, who is likely eligible, and what to do next — including whether you need to complain to your lender or wait for contact under the scheme. It will walk through the timeline, what counts as mis-selling, and how refunds are calculated so you can decide the best way to pursue any payment due to you.
How the Mis-Sold Car Finance Scandal Unfolded
Many customers paid higher interest without knowing dealers or brokers earned extra commission, regulators paused complaints, and a series of court rulings reshaped who can claim redress.
What Led to the Car Finance Scandal
Dealers and brokers commonly arranged motor finance deals for customers who wanted PCP or HP contracts. Lenders paid commissions to those intermediaries, but firms did not always disclose how much or how those payments affected the interest rate.
Between 2007 and January 2021, commission models were widespread across car finance, covering new and used cars, vans, campervans and motorbikes. That meant many consumers could have paid more than necessary without realising it.
Complaints rose sharply in 2022–2024, prompting the Financial Conduct Authority to investigate. The FCA found discretionary commission arrangements were particularly problematic and paused complaint handling while it examined lender practices and prepared a redress scheme.
Discretionary Commission Arrangements Explained
A discretionary commission arrangement (DCA) let a broker or dealer adjust the interest rate on a finance agreement within a margin to increase their commission. This created a direct financial incentive for the intermediary to push higher-cost deals.
DCAs differed from fixed-percentage commissions because the latter paid a set share regardless of the rate charged; DCAs tied pay to the price the customer saw.
Because customers rarely received clear information about DCAs, the FCA concluded those arrangements could lead to overcharging. The regulator banned DCAs in January 2021, but that did not address past agreements, which is why the redress work covers deals back to April 2007.
Role of the Supreme Court and Key Legal Decisions
A sequence of court cases determined whether undisclosed commissions made contracts unlawful and who would be liable. The Court of Appeal once ruled against lenders such as Close Brothers and FirstRand Bank, suggesting many borrowers could claim.
The Supreme Court later overturned that judgment, finding hidden commissions were not automatically unlawful and narrowing the classes of agreements eligible for compensation. That ruling reduced the scope of potential payouts and clarified legal responsibilities for lenders and dealers.
Separately, judicial review outcomes—like the one involving Barclays Partner Finance—also influenced the FCA’s decision to consult on a redress scheme and to pause complaint handling while it awaited legal clarity. The FCA subsequently designed a scheme focused mainly on DCAs and certain high-commission models.
Understanding Refunds and Compensation for Drivers
Drivers may be owed money if their car finance included undisclosed commission, discretionary commission arrangements (DCAs), or other unfair charges. They should expect a lender review, possible adjustment of interest or fees, and guidance from the FCA scheme or the Financial Ombudsman Service if needed.
Who Is Eligible for Car Finance Compensation
Eligibility centers on agreements taken out for personal use between April 2007 and November 2024 where lenders or dealers failed to disclose commission practices that increased the cost to the consumer. Typical eligible products include Personal Contract Purchase (PCP) and Hire Purchase (HP) agreements. If a dealer used a DCA or a high commission model that the borrower was not told about, that increases the chance of a successful claim.
Lenders must presume they failed to give sufficient information when records are missing. Eligibility can depend on whether the vehicle was bought for business use, and on the specifics of the commission model. The FCA’s redress design focuses on undisclosed DCAs but may cover other commission types in some cases; consumers should check whether their specific agreement matches the FCA criteria and dates.
Steps to Claim Your Refund
Start by locating the lender and the original finance paperwork: the credit agreement, APR details, and any paperwork showing dealer or broker involvement. If the lender is unknown, the FCA website and credit reference files can help trace it. Next, submit a formal complaint to the lender describing the undisclosed commission or any misleading sales tactics and request redress.
Keep records of communications, dates, and who was spoken to. If the lender doesn’t resolve the complaint within the expected timeframe, or if the answer is unsatisfactory, escalate to the Financial Ombudsman Service. Alternatively, once the FCA scheme opens, consumers may be contacted by lenders or can opt in using the scheme’s process; firms will also notify those who previously complained. Beware of claims management companies that may charge large fees.
What to Expect from the FCA Redress Scheme
The FCA redress scheme aims to standardize compensation for affected motor finance customers and reduce the need for individual legal action. Lenders will identify potentially eligible agreements, notify customers, and calculate redress by estimating the extra cost caused by undisclosed commission or DCA-driven interest increases.
Consumers who previously complained should receive communication first; those who haven’t will be contacted within six months of the scheme opening. If lenders cannot trace a customer, individuals will have a year to claim directly. The FCA expects automated or formulaic calculations for many claims, producing average payouts rather than case-by-case litigation-level awards. The scheme also warns about firms that might charge up to 30% for handling claims.
How the Financial Ombudsman Service Can Help
The Financial Ombudsman Service (FOS) provides independent dispute resolution when a lender’s final response is unsatisfactory or missing. The FOS can review the complaint, assess whether the consumer was misled about commission or charged unfairly, and make an award that may include refunds, interest, or recalculation of the finance agreement.
Consumers typically need to refer the complaint within six months of the lender’s final response, unless covered by the FCA scheme timing adjustments. The FOS process is free to consumers and can consider individual circumstances that an industry-wide scheme might not. It may be the right route for people seeking higher compensation than the standard scheme offers, though pursuing it can take longer than the FCA redress pathway.
Personal Contract Purchase and Hire Purchase Agreements
PCP and HP are the most common financed-purchase contracts in scope. With PCP, monthly payments are lower because a balloon payment remains at the end; HP spreads ownership across the instalments, after which ownership transfers once payments finish. Both contract types can be affected by undisclosed commission that inflated APR or monthly payments.
For PCP deals, mis-sold commission that increased the APR likely made monthly payments higher and left consumers paying more toward the eventual balloon payment. For HP agreements, the total cost of credit may be inflated through undisclosed dealer commission embedded in the rate. Consumers should check their contract type carefully when preparing a complaint and gather documents showing APR, payment schedule, and any optional add-ons sold at point of sale.
Dealing with Balloon Payments, Monthly Instalments, and Fees
Balloon payments (a lump sum due at PCP contract end) can complicate redress calculations because compensation may reduce the effective cost of credit and alter whether the balloon remains payable or how much was overcharged. Lenders will typically recalculate the total cost, apportion overpayment across instalments and the balloon, and either refund cash or adjust outstanding balances accordingly.
Monthly instalment overpayments are often refunded as a lump sum or used to reduce remaining payments. Exit fees, early settlement charges, or other admin fees linked to the agreement may also be eligible for review if they formed part of the mis-sold package. Consumers should request itemised calculations from lenders showing how any redress affects instalments, balloon payments, and fees, and insist on a clear statement of whether the remedy is a cash refund, reduced balance, or contract adjustment.
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