Updated: 05 December 2025
Originally Published: 10 July 2025
Who Is Eligible, How Refunds Work, and What the FCA’s Latest Announcements Mean for You
Key Takeaways
- You may be entitled to compensation for a regulated motor finance agreement you entered into between 6 April 2007 and 1 November 2024.
- Many agreements involved undisclosed commissions, inflated interest rates, or preferential lender arrangements that were never explained.
- The FCA has confirmed that the pause on complaint handling will lift on 31 May 2026 [1].
- Leasing complaints are not part of the pause and can already move forward.
- You do not need the car or the paperwork to start a claim.
- Submitting your complaint early protects your position for the upcoming redress scheme.
Introduction
The UK car finance scandal has moved into its most decisive phase. The FCA’s work in 2025, paired with the Supreme Court ruling in August [2], has reshaped how lenders must respond to complaints and how redress will work for millions of drivers.
The FCA’s December announcements have provided the clearest picture yet of what consumers can expect. The regulator published PS25/18 on 3 December 2025 [3]. This sets out expectations for how fair complaint handling should work once the pause lifts. The FCA also confirmed that the pause on motor finance complaint handling will lift on 31 May 2026. This allows lenders time to prepare for the volume of reviews, engage with the final redress scheme design and ensure that consumers are not disadvantaged because of past disclosure failures.
This updated guide explains everything you need to know. It shows who may still be eligible for car finance refunds. It explains the FCA’s proposals, the Supreme Court ruling, how compensation may be calculated, and what steps you should take now to protect your complaint. It also includes summaries for all major lenders and a practical checklist to help you begin confidently.
Who Is Eligible for Car Finance Compensation in 2025?
You may qualify for car loan compensation if any part of your finance agreement was not explained clearly, or if the dealership earned commission in a way that pushed up the cost of your loan without your knowledge.
You may be eligible if:
- You entered a regulated motor finance agreement between 6 April 2007 and 1 November 2024
- You were not told that the dealer or broker earned commission
- You were not told the dealer could influence your interest rate
- You did not receive a clear explanation of how your rate was chosen
- You paid more because your agreement rewarded the dealer for setting a higher rate
You may still be eligible even if:
- You do not have the car
- You have lost the paperwork
- The dealership no longer exists
- You used a broker or car supermarket instead of a main dealer
- Your agreement was taken out more than a decade ago
The FCA has stressed that lenders should rely on their internal records to identify agreements and calculate redress. This means you do not need to remember every detail to begin.
How to Tell If You Were Mis-Sold a Car Finance Agreement
Car finance mis-selling often happened because key information was not disclosed. Ask yourself the following questions.
1. Were you told about commission?
Most customers were not told that dealers increased their interest rate to increase their commission. If you were not given a clear explanation, this is a strong indicator of mis-selling.
2. Did you receive a proper breakdown of costs?
Many drivers saw a monthly payment and nothing more. If the dealership did not present a clear breakdown of interest, fees or charges, your agreement may be unfair.
3. Did the dealership offer alternatives?
Some customers were told that in-house finance was required or the “only option”. Sales staff should have explained PCP, HP and personal loans to allow you to make an informed choice.
4. Did you feel rushed or pressured?
If you were not given time to review the paperwork or ask questions, the process may have lacked transparency.
If your answer to any of these questions raises concern, you may have a valid mis-selling complaint.
The FCA Consultation: What Has Happened and What It Means
In October 2025 the FCA opened a consultation on a new redress scheme [4]. This scheme is expected to cover millions of historic agreements. The original consultation planned to close in November, but the regulator extended the deadline to 12 December 2025 at 5pm [5] to allow fuller industry engagement.
Why the extension matters
The volume of evidence, the number of lenders involved and the complexity of commission structures required more time. Extending the deadline helps ensure the final redress framework is complete and fair.
How many agreements may be affected
The FCA estimates that:
- Up to 14.2 million agreements may be unfair [6]
- This represents 44 per cent of all car finance loans since 2007
Most issues relate to:
- Hidden commissions
- Interest rates inflated for profit
- Preferential lender contracts that were not explained
This scale shows how widespread the problem became.
Three Practices that Made Agreements Potentially Unfair [7]
1. Discretionary Commission Arrangements (DCAs)
Dealers were allowed to adjust the interest rate. Higher rates meant higher commission. Customers were rarely told. DCAs were banned in 2021 [8].
2. High Commission Structures
Agreements may be considered unfair when commission was:
- 35 per cent or more of the total credit cost
- And 10 per cent or more of the loan amount
- And not explained clearly
These thresholds apply only to the FCA scheme.
3. Exclusive or Preferential Lender Agreements
Some dealers claimed to search multiple lenders but actually used only one. Customers were misled and often paid more than necessary.
When lenders may challenge unfairness
A lender may challenge a case if they can show:
- Clear disclosure was given
- The customer received the lowest available rate
Even then, many agreements still show signs of unfairness.
What the FCA Announced on 3 December 2025
The FCA published two major updates.
1. PS25/18: New Rules for Complaint Handling
PS25/18 tells firms how they must handle complaints once the pause ends. It sets expectations for fairness and clarity, especially where commission arrangements were complex. It also makes clear that the pause and the complexity of historic commission models must not disadvantage customers.
2. The Pause on Complaint Handling Ends on 31 May 2026
From this date, lenders must issue decisions on complaints submitted since January 2024. Firms are expected to prepare for significant volumes.
Important
The pause does not apply to vehicle leasing complaints. Those cases can already progress.
How Compensation Will Be Calculated
The FCA aims to balance fairness and practicality. Most customers will fall into one of two groups.
1. The Hybrid Formula
This applies to most agreements. Redress will be the average of:
- What you overpaid because the interest rate was inflated
- The total commission paid on your agreement
For example, if your APR was 10 per cent but should have been closer to 8.3 per cent without hidden commission, the difference becomes part of your compensation.
2. Johnson-Type Cases
These are serious cases involving very high commission. A small number of customers will receive:
- The full commission amount
- Plus interest
This applies when:
- Commission made up 50 per cent or more of the total cost of credit
- And 22.5 per cent or more of the loan amount
- And disclosure was extremely poor
3. Interest Added to Redress
Compensation will include simple interest at the Bank of England base rate plus one per cent. The FCA estimates this will average 2.09 per cent.
Average Payouts
The FCA expects the average payout to be around £700 per agreement. This is an estimate and may be much higher for larger agreements. Across the industry, potential compensation could reach £8.2 billion.
The Supreme Court Ruling: What It Means Today
On 1 August 2025 the Supreme Court resolved three appeals involving Close Brothers and MotoNovo [9]. Only one case, involving Marcus Johnson, succeeded.
Why Johnson won
- A large undisclosed commission
- Lack of clear information
- A commercially inexperienced customer
This combination created an unfair relationship under consumer credit law.
Why the other cases were rejected
The Court ruled that:
- Commission alone is not unlawful
- Consumers must show lack of disclosure in their own case
- Statements like “a commission may be paid” might not be enough, but they are not automatically unfair
- Each claim must be assessed individually
This means consumers must show what happened in their agreement.
How the FCA Redress Scheme Will Work
The FCA wants the scheme to be simple and accessible.
1. Lenders identify affected customers
Lenders will review their records and contact anyone who may qualify.
2. If you have already complained
You will be included unless you opt out.
Your lender will contact you within three months of the scheme opening.
3. If you have not complained
Your lender will contact you within six months of the scheme opening.
You will have six months to opt in.
4. If the lender no longer has your details
You can still join.
You will have one year from the start of the scheme to request review.
5. If you disagree with the outcome
You can escalate to the Financial Ombudsman Service.
Popular Lenders and What Mis-Selling Looked Like
The lenders below appear often in consumer complaints, FCA reviews and discussions about historic commission practices. Each summary reflects common issues raised by drivers over the years and the patterns seen across the industry before commission rules changed in 2021. These are not judgments about individual cases, but an overview of the themes many customers recognise in their own experiences.
Many Alphera customers say they were never given a clear explanation of how their interest rate was set. Some later discovered the rate seemed high for their credit profile and that commission had been factored in without their knowledge. Read more.
Drivers often assumed their dealership compared multiple lenders, only to learn later that Audi Finance was the default option. This sometimes resulted in rates that did not match the customer’s credit history or expectations. Read more.
Some customers report that fees and add-on costs were described vaguely or not broken down clearly. Others say commission was barely mentioned, which left them unsure how their final rate was determined. Read more.
Black Horse is one of the lenders most commonly mentioned when people talk about mis-selling. Many drivers say their interest rate was adjusted because of commission arrangements, yet nobody explained what this meant or how it affected the cost of the deal. A lot of customers recall feeling unsure about how their price was worked out, which is why transparency became such a concern in these complaints. Read more.
Blue Motor customers often mention rushed affordability checks or a lack of clarity around commission. Many say the conversation focused heavily on the monthly payment rather than the true cost of the agreement. Read more.
Complaints often centre on large balloon payments that were not fully explained. Some customers with strong credit histories also felt that their rates were higher than expected without a clear reason. Read more.
Drivers sometimes say they were not told how broker incentives worked or why certain fees appeared on the agreement. A lack of explanation at the point of sale is a common theme. Read more.
Close Brothers sat at the heart of the Supreme Court cases. Many customers say dealers increased their rate to earn more commission and that they were never told this could happen. Read more.
Clydesdale Bank Finance Claims
Clydesdale customers often mention vague fee descriptions and little to no disclosure about commission. Some only discovered years later that the dealer was financially incentivised to offer a certain product. Read more.
Honda customers frequently say balloon payments or mileage rules were brushed over rather than explained. Others say their interest rate felt higher than their credit score would suggest. Read more.
Many people say the interest rate they were given did not match their financial situation, and they were never shown how it was worked out. Others only learned later that commission may have shaped the deal, even though this was not explained at the time. Read more.
Many drivers report being offered rates that seemed unusually high without a clear explanation. Some say dealer incentives or commission were never discussed openly. Read more.
MotoNovo played a central role in the Supreme Court ruling. Customers often describe very limited disclosure around commission and quick explanations that did not allow them to understand how their deal was structured. Read more.
Northridge complaints often involve confusion about how rates were chosen. Some customers say fees were unclear or that the deal felt rushed on the day. Read more.
Some drivers discover add-ons in their paperwork that they do not remember talking through in any real detail. Others say the commission setup was touched on only briefly, leaving them without a clear sense of how it affected the price they paid. Read more.
Many say their APR was higher than they expected or that their rate changed during the process. Commission was rarely discussed in detail. Read more.
Many Toyota customers say the balloon payment or mileage rules were mentioned only in passing. These gaps in the explanation left some drivers facing costs they never expected when the agreement came to an end. Read more.
Some customers say the numbers they talked through in the showroom did not match what appeared later on the paperwork. Others only found out much later that commission had been added behind the scenes. Read more.
VW Finance customers often assumed the dealer shopped around the market. In reality, many deals were tied to a single lender. Complaints frequently involve inflated rates and undisclosed commission. Read more.
What You Should Do Now
Taking action early is important. The FCA has not set a claim deadline, but waiting has no benefit.
Why you should act now
- Your complaint will be logged before the scheme starts
- You secure your place for the 2026 review process
- You avoid delays when the pause lifts
- Some lenders may settle early if the case is clear
- You do not need full paperwork
What you need to start
Most people begin with very little. You can start with:
- Bank statements
- Vehicle details
- Emails from the dealership
- Approximate agreement dates
The FCA expects lenders to fill in the gaps using their internal records.
Options for Making a Car Finance Claim
You can pursue a complaint in three ways.
1. DIY Complaint
- Free
- Straightforward for simple cases
- Template letters available from FOS, Citizens Advice and consumer groups
2. Claims Management Company (CMC)
A regulated CMC or finance claims expert can:
- Review your agreement
- Identify signs of mis-selling
- Draft the complaint
- Trace older agreements
- Manage all communication
- Work on a No Win No Fee basis
This is useful for people who feel unsure or have several past agreements.
3. Solicitor
Suitable for complex or high-value cases.
May involve fees unless a conditional arrangement is offered.
Important
Avoid cold callers or unregulated firms. Only use FCA-authorised organisations.
Frequently Asked Questions
Do I need all my paperwork to start?
No. Lenders hold your records and must use them to assess your case.
Does it matter that the dealership closed?
No. Your lender, not the dealer, is responsible for the agreement.
Can I still claim if I refinanced, traded in or sold the car?
Yes. Ownership does not affect eligibility.
Will every claim succeed?
No. Each claim must show lack of disclosure or unfairness. Many will qualify, but not all.
Should I wait until 2026?
No. Submitting now protects your place and ensures your complaint is included.
Final Thoughts
The FCA’s December announcements have given consumers and lenders something they have been waiting for. There is now a clear path forward and a defined date for when complaint handling will restart. The proposed redress scheme is taking shape. The regulator continues to stress that consumers must not be disadvantaged by old commission models or the pause.
Many drivers still have strong cases, especially where commissions were hidden or interest rates were inflated without explanation. By taking the first step now, you protect your position and ensure your complaint is ready for review as soon as the new process begins.
You do not need perfect records. You do not need every detail. You simply need to act. Starting now helps you feel more prepared and places you ahead of the rush expected in mid 2026.
If you believe you were affected by mis-selling, this is the moment to check. A simple enquiry could be all you need to understand your rights and move forward with confidence.
_________
References:
- pause on complaint handling will lift on 31 May 2026 - https://www.fca.org.uk/news/statements/pause-motor-finance-complaints-handling-lift-31-may-2026
- Supreme Court ruling in August - https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf
- The regulator published PS25/18 on 3 December 2025 - https://www.fca.org.uk/publications/policy-statements/ps25-18-changes-handling-rules-motor-finance-complaints
- In October 2025 the FCA opened a consultation on a new redress scheme - https://www.fca.org.uk/news/statements/fca-consults-motor-finance-compensation-scheme
- the regulator extended the deadline to 12 December 2025 at 5pm - https://www.fca.org.uk/news/statements/motor-finance-compensation-scheme-consultation-progress-and-timing
- Up to 14.2 million agreements may be unfair - https://www.fca.org.uk/news/press-releases/14m-unfair-motor-loans-compensation-proposed-scheme
- Three Practices that Made Agreements Potentially Unfair - https://www.fca.org.uk/publication/consultation/cp25-27.pdf
- DCAs were banned in 2021 - https://www.fca.org.uk/news/press-releases/fca-ban-motor-finance-discretionary-commission-models
- On 1 August 2025 the Supreme Court resolved three appeals involving Close Brothers and MotoNovo - https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf