Updated: 4 August 2025

Originally Published: 10 July 2025

Key Takeaways:

• If you entered into a car loan or PCP deal between 2007 and January 2021, you could be owed a refund.
• Check if you have any signs of mis-selling like undisclosed commissions or higher rates than advertised.
• Understand your rights and follow the complaints process step by step.
• Keep up with the latest news as the FCA is set to deliver guidance.
• Don’t be shy to ask for advice if you are not sure where to start.

Introduction

In recent months, the UK car finance industry has come under close scrutiny as a large-scale mis-selling scandal deepens, threatening to overshadow even the notorious PPI crisis in terms of numbers and impact. As this pivotal Supreme Court (SC) ruling sets the stage for a watershed moment, thousands of consumers are questioning; Am I eligible for car loan compensation? and How can I claim what I’m owed?

In this handy guide, we take a look at the car finance scandal. Find out how to see if you have been mis-sold, how to prevent being mis-sold finance in the future, what Discretionary Commission Arrangements (DCAs) are, your consumer rights, and the latest updates on settlements.

Who Is Eligible? Your Car Finance Compensation Checklist

You may be due compensation if you arranged car finance in the UK between 2007 and 2021. You may have a claim if your loan was not sold in a fair, transparent way and always in your best interests.

Here are key indicators to help you determine if you might have a claim:

• You weren’t told that your broker or dealership made commission on your finance agreement.
• The dealer chose a finance product that benefitted them (higher commission) instead of one that suited your needs.
• You were ‘sold’ a loan at a higher interest rate than you would have qualified for.
• You weren’t given a clear explanation of the loan terms, costs, and alternatives.
• You were rushed into signing by the salesperson with no time to think it over.

If any of the following applies to you, you may be able to claim compensation. The Financial Conduct Authority (FCA) has already flagged concerns about hidden commissions [1] and opaque practices, and many claims are currently progressing through the Financial Ombudsman Service (FOS) and the courts.

For peace of mind, it’s a good idea to check car finance claim eligibility even if you’re unsure. Many tools and advisers can help you assess your agreement, review the documents, and confirm whether you have a case, often at no upfront cost. Follow these simple steps and save time in getting to grips with your rights.

How to Know If You Were Mis-Sold a Car Finance Deal

Even if you suspect wrongdoing, it’s not always obvious if you were mis-sold. To help you assess your situation, consider these questions:

Did the dealership disclose how much commission they were earning?

If a salesperson failed to make it clear to you that they were receiving a commission from a lender for arranging your finance, this may be mis-selling. This matters as it may have impacted the deal that they offered you, which is typically that you overpaid.

Were you shown a breakdown of costs, including interest and fees, before signing?

You should have been given a clear, written breakdown of the total amount you would repay, including the interest rate, any arrangement fees, and optional extras. If the dealership glossed over this or left out key details, it suggests the agreement may not have been fully explained, which is another indicator of mis-selling.

Were you offered alternatives or told about cheaper options?

Sales staff should have presented you with a range of options, such as hire purchase, PCP, or a personal loan, and explained the differences. If you were only offered one product, particularly if it came with a higher interest rate and were not told about more competitive alternatives, the deal may not have been in your best interest.

Did the salesperson suggest other means instead of in-house finance to get the car?

Some dealerships wrongly tell customers that using their in-house finance is mandatory to complete the purchase or secure a discount. The claim is not true. You have every right to obtain your own finance from another source. If you felt pressured to use their lender under false pretences, that could constitute mis-selling.

These questions aim to help you reflect on how your agreement was handled. If you said no to any of the above questions, it is possible you have been mis-sold. Documentation is key so gather your loan agreement, correspondence, and any notes about the conversation at the time. These will support your claim.

PCP Mis-Selling Explained: How to Claim What You’re Owed

The PCP agreement was one of the products involved in the scandal. Personal Contract Purchase (PCP) is a popular way to finance a vehicle purchase but has also proven to be a breeding ground for mis-selling.

PCPs are like car loans. They give you the option to return the car or pay a final sum to keep it. However, many consumers were not informed about the full costs, limitations, or commissions tied to the agreement.

Some dealerships arranged PCPs with higher interest rates simply to earn bigger commissions from the lender, leaving customers paying thousands more than necessary. If this happened to you, you could be entitled to a refund of the excess interest and charges.

To understand more about how PCP mis-selling works and how you can start a claim, read this guide: PCP Mis-Selling Explained: How to Claim What You’re Owed.

How to Avoid Mis-Sold Car Finance Deals in the Future

While thousands are pursuing compensation for past agreements, many are also wondering how to avoid being mis-sold in the future. Here are a few tips to help you look after yourself:

• Always ask if the salesperson is earning commission on the loan and how it affects your deal. Knowing whether, and how much commission the dealer or broker earns, can help you assess whether the deal is truly in your best interests. A high commission might mean you’re being offered a more expensive loan than necessary, so asking this question can encourage transparency and potentially save you money.
• Shop around; get quotes from multiple lenders, not just the dealership. Dealers often make money from the financing they sell, so their offer might not be the most competitive available. By comparing quotes from your bank, credit union, online lenders, and independent brokers, you can ensure you’re getting the lowest possible interest rate and most suitable product.
• Review all paperwork thoroughly before signing and take it home if possible. It’s easy to miss important details when you’re excited to get a new car, but contracts can contain clauses or charges that aren’t immediately clear. Taking the time to read through everything carefully, ideally at home without pressure, allows you to spot any red flags before you commit.
• Ask questions about anything you don’t understand, and don’t feel pressured to decide on the spot. If something in the agreement is unclear, don’t hesitate to ask for clarification. A reputable dealer should be willing to explain the terms. And finally, don't be pressured into signing the paperwork on the spot. Take your time and make sure it’s the right decision for you.
• You might like to try using an independent broker with a good reputation, or contact your bank directly. Independent brokers and mainstream lenders are also more likely to be upfront and competitive compared to dealerships. They may offer better rates and clearer explanations of your options because they’re not tied to selling a specific product.

By taking these steps, you can reduce the chances of overpaying or ending up with a loan that isn’t right for you, and avoid ending up in the same situation as the many people now claiming car finance compensation. By staying informed and being assertive, you can help to ensure you get a fair and transparent deal.

What Are DCAs and Why Do They Matter?

At the heart of the ongoing legal and regulatory debate is a practice known as Discretionary Commission Arrangements (DCAs). These arrangements allowed brokers and dealers to adjust the interest rate offered to the customer: the higher the rate, the more commission they earned.

The problem? Customers were rarely told that their rate had been inflated simply to boost the dealer’s income. DCAs were banned in 2021 after the FCA ruled that they incentivised unfair practices and resulted in consumers overpaying.

If your car loan involved a DCA before the ban, you may have paid significantly more than you should have. Understanding how these arrangements worked is vital to assessing your claim. This Discretionary Commission Arrangements guide offers more insights..

It is also important to recognise that DCAs are just one example of a wider issue with car finance commission practices. Even outside of formal discretionary arrangements, many customers were unaware that their finance agreements included hidden commissions that influenced the deal they were offered. This lack of transparency about car finance commission has become a central concern in the current scandal, as it has often resulted in consumers paying unnecessarily high costs.

Consumer Rights: What We Know So Far About Claims Against Lenders

If you’ve established that you were mis-sold, what are your next steps? Fortunately, UK consumers have robust rights under the Consumer Credit Act and FCA rules. Here’s what to keep in mind:

• You can complain directly to the lender (not just the dealership). They are responsible for the agreement. Even if you arranged your finance through a dealership, it is the lender, or the finance company providing the money, who is ultimately accountable for ensuring the agreement was fair and transparent. You should address your complaint to the lender rather than the dealer, as they are regulated and responsible under the law.
• If the lender refuses to deal with your complaint, you can take it to the FOS. If you’re not satisfied with the lender’s response or they deny your claim, you can take the matter to the independent Financial Ombudsman Service. The FOS will look at your complaint and make a fair judgement.
• You can get the help of a claims management company, and some people choose to use a finance claims expert for convenience. Claims management companies (CMCs) can take care of the process for you, but they tend to charge a percentage of the payout. To avoid upfront costs, it’s best to choose a CMC that operates under a no win, no fee scheme. The cost is something to consider versus the convenience of them doing it for you.
• Make a note of all your correspondence, the agreement and any proof of mis-selling. To support your claim, you’ll need as much evidence as possible, including your original finance agreement, emails, letters, and notes about what was said during the sales process. These documents help demonstrate how the agreement was presented to you and highlight any failures in disclosure or fairness.

Understanding and exercising these rights gives you a much stronger chance of recovering what you may be owed. Staying organised, informed, and proactive throughout the process will help ensure you’re treated fairly and that your complaint is properly considered.

Each lender may handle claims differently, and the FCA is expected to issue further guidance following the SC ruling. For now, acting promptly and following the complaints process gives you the best chance of success.

Lender-Specific Claims: What to Know About Black Horse, Close Brothers, and MotoNovo

If you financed your vehicle through Black Horse, you may be entitled to compensation if your loan involved undisclosed commissions or inflated interest rates. Many customers are now exploring their options and filing complaints directly with the lender or through the Financial Ombudsman. To learn more about your rights and how to proceed, visit this guide: Understanding Black Horse Finance Claims: Who Can Claim and How It Works.

Similarly, Close Brothers customers who were affected by mis-selling practices are beginning to file claims. If you believe you were charged an unfair rate or weren’t informed about commission arrangements, you may also have a valid claim. This resource explains what steps to take next: Close Brothers Finance Claims: Are They Refunding and Who Can Claim?.

MotoNovo Finance is another major lender under scrutiny as part of the car finance scandal. Many customers have discovered they paid more than necessary because of hidden commissions or lack of proper disclosure. For guidance on whether you can recover money and how to make your case, see: Understanding MotoNovo Finance Claims: Can You Get a Refund?.

These lender-specific claims highlight the importance of checking your agreement, even if you dealt with a well-known company. Each lender has slightly different procedures for handling complaints, but your rights as a consumer remain the same. By taking action promptly, you can ensure your claim is considered fairly and increase your chances of receiving compensation.

Latest Updates on Car Finance Scandal in the UK

Litigation in the area of car finance claims is gathering pace. The Supreme Court handed down a ruling last August 1, 2025 [2]but instead of triggering another flood of payments, it limited compensation in most cases.

So, what has happened to date?

• The FCA banned DCAs in January 2021 [3], but claims are still being processed for pre-ban agreements.

The FCA identified DCAs as harmful to consumers because they encouraged brokers and dealers to inflate interest rates. As a result, the FCA banned these arrangements for all new agreements starting January 2021. However, if you entered into a car finance agreement before that date, and a DCA was involved, you may still be entitled to compensation. Claims are currently being reviewed for agreements dating as far back as 2007, with many customers finding they overpaid without realising.

• The FOS has upheld several complaints [4], finding that customers paid excessive interest due to undisclosed commissions.

One of the key areas in which the FOS has made a real impact has been in relation to complaints about mis-sold car finance. In a number of instances, it has been found in the customer's favour, stating that lenders and brokers did not make consumers aware of large commissions and customers ended up paying more than they should have. These decisions have set important precedents and put pressure on lenders to review and settle complaints more quickly and fairly.

• Thousands of complaints are pending, with some lenders setting aside funds [5] in anticipation of payouts.

Since the FCA and FOS began investigating these issues, a surge of complaints has been filed against major lenders. Many lenders have acknowledged the scale of the problem and have already earmarked substantial reserves to cover expected compensation payments. These provisions indicate that lenders recognise their exposure and the likelihood of significant settlements following the SC’s decision.

• Legal experts now say the Supreme Court ruling [6] has provided some clarity, but not a sweeping mandate, on whether lenders must proactively compensate customers affected by mis-sold car finance.

The Court upheld only one of the three cases it reviewed, siding with consumer Marcus Johnson due to the specific unfairness in his agreement with the South African lender FirstRand (trading as MotoNovo in the UK). This has set a potential precedent where certain forms of commission arrangements may be deemed legally unfair. However, the ruling did not broadly compel all lenders to review and refund customers automatically. It has instead placed the burden of broader compensation decisions on the Financial Conduct Authority (FCA), which will now decide whether a formal redress scheme should be created.

• The Financial Conduct Authority has now formally responded to the Supreme Court ruling. It has said that it will consult in early October 2025 [7] on whether to implement a formal scheme, and for it to be open for 6 weeks.

In its official statement, the FCA said: “We welcome that the Supreme Court has clarified the law.” The regulator emphasised that its aim is to ensure consumers are fairly compensated and that the motor finance market functions properly, noting that many people use such finance each year to buy a car. According to reports, the average compensation payout is expected to be £950 [8], though individual amounts will vary based on the specifics of each agreement. The FCA intends to engage widely with stakeholders, including consumers, motor dealers, and finance providers.

If you think you were mis-sold a car finance deal, it is important to keep up to date with these developments. Each new decision and announcement brings the industry one step closer to processing claims and treating consumers fairly. To keep abreast of the latest news, you can follow this updated resource: Latest Updates on Car Finance Claim Settlements in the UK.

From PPI to Car Finance: The Next Multi-Billion-Pound Scandal?

The car finance scandal is already being compared to the notorious PPI mis-selling debacle, which resulted in billions of pounds in compensation to UK consumers. While PPI involved payment protection insurance sold alongside loans, the car finance scandal centres on hidden commissions and unfair practices within vehicle financing agreements.

Many in the industry see this as the next major compensation wave, potentially dwarfing even the PPI payouts. The FCA has hinted that the same principles of transparency and fairness apply.

For a detailed analysis of how the landscape is shifting from PPI to car finance claims, see: Assessing the Shift from PPI to Car Finance Claims as the Next Multi-Billion-Pound Compensation Wave in the Payment Industry.

Final Thoughts

It’s the biggest car finance mis-selling scandal yet in the UK, and millions of consumers could be in line for hundreds of pounds each in redress if they were mis-sold. If you think you might have been one of them, it’s time to dig out your paperwork, read about your rights and start making your claim.

While the Supreme Court’s decision offers only a partial victory for consumers, all eyes are now on the FCA, which confirmed it will decide quickly on whether to establish a redress scheme. Although no hard date has been issued, the regulator is expected to proceed with a consultation in early October 2025 on whether to implement a formal scheme, and for it to be open for 6 weeks. Consumer groups remain hopeful that the FCA will take a strong stance, especially given the Court’s finding in Johnson’s case, which exposed how some lenders benefitted unfairly from undisclosed commission structures.

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1. FCA flagged concerns about hidden commissions - https://www.fca.org.uk/news/press-releases/fca-bans-discretionary-commission-models-protect-consumers
2. Supreme Court handed down a ruling last August 1, 2025 - https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf
3. FCA banned DCAs in January 2021 - https://www.fca.org.uk/news/press-releases/fca-ban-motor-finance-discretionary-commission-models
4. FOS has upheld several complaints - https://www.financial-ombudsman.org.uk/decision/DRN-4326581.pdf
5. lenders setting aside funds - https://www.thesun.co.uk/money/36139717/major-bank-car-finance-payout/
6. Supreme Court ruling - https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf
7. FCA to consult in early October 2025 - https://www.fca.org.uk/news/statements/fca-consult-compensation-scheme-motor-finance-customers
8. average compensation payout is expected to be £950 - https://www.birminghammail.co.uk/motoring/motoring-news/14-million-drivers-could-receive-32193839