Millions of motorists could be handed a share of a multi-billion-pound compensation package after the financial regulator said it would open a redress scheme for affected consumers.
The Financial Conduct Authority (FCA) will consult on the redress scheme, it confirmed on Sunday. It could cost banks between £9bn and £18bn when it begins paying out next year.
However, drivers who were mis-sold car finance were warned that they are likely to get less than £950 a claim.
The FCA set out the plans after the Supreme Court overturned, in greater part, a ruling on car finance that could have led to compensation payouts of up to £44bn – a similar scale to the payment protection insurance (PPI) scandal.
However the judges made an exception, and there are still chances for motorists to make a claim. Here, The i Paper speaks to experts to find out how and what to expect from the compensation scheme.
What the Supreme Court ruling means for your claim
The Supreme Court ruling has narrowed the scope for compensation claims. Consumer expert, who runs the Complaints Resolver blog, Scott Dixon explained that the court sided mostly with lenders.
He said: “The Supreme Court has ruled that millions of motorists will not be able to claim compensation for hidden commissions on car finance deals, overturning earlier Court of Appeal decisions that had raised hopes of a windfall on a scale bigger than the PPI scandal.
“The Court reviewed three cases and sided with lenders in two, stating that non-disclosure of commission payments alone does not make a finance agreement unfair under the Consumer Credit Act.”
However, the court made an important exception in one case, ruling against the lender because the customer was charged an extremely high 55 per cent interest rate and was misled by the documentation.
This judgment sets a precedent that certain agreements may still be deemed unfair, even if no discretionary commission was paid, keeping the door open for some customers to seek redress.
How the FCA’s compensation scheme will work
The FCA has confirmed it will consult on a formal compensation scheme for consumers affected by “discretionary commission arrangements” (DCAs), where dealers increased interest rates without disclosure to boost their own commission.
Paul Barker, editor at Auto Express, said the FCA’s plans could lead to payments starting in 2026, which could total as much as £18bn.
But he emphasised that the process is still evolving, and further legal developments could affect the final scope.
Barker advised consumers to act early – and avoid third-party claims firms.
He said: “If you believe you weren’t told about dealer commission on your car finance deal, you should submit a complaint directly to your lender or broker – there’s no need to pay a claims management firm or lawyer.
“These third parties can take up to 30 per cent of your compensation, and the FCA has made it clear that DIY claims are both simple and free.”
He added that if the FCA’s proposed “opt-out” scheme were to go ahead, eligible customers might receive compensation automatically, without needing to submit claims themselves.
What you need to do now to protect your claim
Pete Ridley, of advice website Car Finance Saver, stressed the importance of submitting complaints promptly.
He explained that anyone who financed a vehicle through PCP (personal contract purchase) or HP (hire purchase) agreements between 2007 and January 2021 could have been affected, especially if their deal involved a dealer or broker.
Mr Ridley said: “If you think you might’ve been affected by the car finance mis-selling scandal, the best thing to do right now is to take action yourself, and the earlier, the better.
“Start by submitting a complaint directly to your car finance provider, as you don’t need to wait for the official FCA scheme to launch in 2026 or for your lender to get in touch.”
He encouraged consumers to gather all related paperwork, such as emails, statements, and loan documents, to support their complaint.
He warned against using claims management companies or lawyers, which can charge up to 30 per cent of compensation and often provide no additional help.
The scandal highlights deeper problems with how car finance is structured, experts warned.
Greg Huitson-Little, of business advisory firm Menzies, said complicated terms such as “dealer contributions” and “guaranteed future values” have blurred the lines between buying a car and arranging finance, making it difficult for consumers to understand what they are signing.
“The lack of transparency, brought into sharp focus with hidden commissions, has steadily eroded consumer trust, which will likely have long term implications for motor finance and wider consumer credit sectors,” he added.
He called for clearer terms, simpler finance structures, and proper disclosure to restore trust in the industry.
How compensation could help customer finances
Rhydian Jones, motoring expert at Confused.com, said the compensation could ease financial pressure on affected drivers.
He said: “The scale of this issue is worrying, and it shows what can happen when people aren’t given clear, upfront information about the cost of borrowing.”
Consumers should review their finance agreements carefully and seek advice if anything seems unclear or unfair, he urged.
He also highlighted the importance of comparing finance options before agreeing to any deal.
Key steps to take if you think you were mis-sold car finance
- Submit a complaint directly to your lender or broker.
- Act now. Submit a complaint as soon as possible. Once the scheme launches, likely in 2026, compensation payments will be made automatically to eligible claimants, but acting early can help ensure you are included.
- Don’t use claims management companies or lawyers who charge high fees, as the FCA intends for compensation claims to be straightforward and free for consumers.
