Updated: 03 April 2026
Originally Published: 10 July 2025
Who Qualifies, How the FCA Redress Scheme Works, and What Happens Next
Key Takeaways
You could be eligible for car loan compensation if you entered a regulated agreement between 6 April 2007 and 1 November 2024. In March 2026 the Financial Conduct Authority (FCA) confirmed the formal car finance compensation scheme in policy statement PS26/3 [1].
Around 12.1 million agreements may be affected by the car finance scandal, making it one of the largest consumer finance issues in the UK.
The FCA expects firms to issue redress decisions for complaints already submitted by 30 November 2026, with payments likely to follow in early 2027. Average car finance refunds are estimated at around £829 per agreement, based on FCA modelling [2].
You do not need your car or paperwork to begin car finance claims, and it’s important to submit yours as soon as possible. The early you file your claim the better chance your case will be reviewed during this first stage.
What Is the Car Finance Scandal?
The car finance scandal centres around how car finance agreements have been sold including undisclosed commission and hidden pricing.
Dealers were earning commission from lenders and it affected the rate of interest they were offered. Often this wasn't explained to them.
Drivers could have easily been paying over the odds for their car finance without knowing why. These are now driving millions of car finance claims, PCP claims included.
Why Is This Happening Now?
There has been a clear progression of events:
In 2021 the FCA banned discretionary commission agreements. [3]
In 2025 The Supreme Court issued a ruling on how unfair relationships should be judged under consumer credit law.
In March 2026 the FCA confirmed it would be operating a formal redress scheme in PS26/3.
Thanks to this clear line of progression, car finance compensation have been able to progress from inquiry to resolution.
The Supreme Court Decision: Why It Matters
Claims for mis-selling of car finance were taken to court before the FCA published its redress scheme.
The Supreme Court heard cases against lenders [4] Close Brothers and MotoNovo in August 2025. These turned on undisclosed commission creating an unfair relationship under the Consumer Credit Act.
The Supreme Court made a number of rulings.
Undisclosed commission is not automatically unlawful. Disclosure is the key issue. The facts of each agreement need to be considered individually.
In one instance the Supreme Court felt that the level of undisclosed commission and poor explanation did create an unfair relationship.
This ruling did not mean that all consumers were automatically entitled to redress. But it did provide the legal basis for the current car finance claims and PCP claims as well as uphold the FCA’s stance in PS26/3.
Who Is Eligible for Car Finance Compensation in 2026?
You may be able to claim car finance compensation if you were mis-sold car finance and were not explained important financial information according to the FCA car finance scheme.
If your agreement contained hidden commission, interest rates hiked due to dealer incentives or you were not made aware of how the deal was put together you may be owed compensation.
The FCA has set out in PS26/3 that an unfair relationship can arise where important information about commission/incentives was not properly disclosed.
You can still make car finance claims even if you don’t have the car, lost paperwork or took out the agreement several years ago. Lenders must rely on their own records.
When Might You Not Receive Compensation?
You will not get compensation for every instance of car finance mis-selling.
The FCA believe certain agreements will be deemed not eligible for car finance refunds. This includes when commission was low, interest rates were already low or an agreement has already been settled.
All claims for mis-sold car finance are looked at on a case-by-case basis.
How to Tell If You Were Mis-Sold Car Finance
Ask yourself if you were ever made fully aware of commission, knew how your rate was calculated and were given a full explanation of the deal if you're wondering whether you may have a valid car finance claim.
If you’re not sure about any of these things a car finance refund check could help you understand where you stand.
The FCA Redress Scheme Explained
In PS26/3 published in March 2026, the FCA finalised the structure of the car finance compensation scheme.
The scheme is divided into two parts:
- Scheme 1 covers agreements from 2007 to March 2014.
- Scheme 2 covers agreements from April 2014 to November 2024.
This allows newer cases to be processed more quickly.
The FCA estimates that around 12.1 million agreements fall within scope.
What Caused the Car Finance Scandal?
Simply put, it comes down to disclosure.
Discretionary commission arrangements enabled dealers to markup interest rates to increase commission. Transparency wasn’t disclosed to the customer very often.
Sky high commissions tied large percentages of the cost of credit to undisclosed incentives.
Choice of lenders was often so limited it created an illusion of comparison shopping.
What Happens After May 2026?
The pause on car finance claims ends on 31 May 2026 [5].
From June 2026, firms must begin responding to complaints again. Complaints already submitted are expected to be reviewed first.
Due to the scale of the car finance scandal, delays are likely.
How Existing Complaints Will Be Handled
A key part of the FCA’s redress scheme is how it interacts with complaints that have already been submitted.
If your car finance claim falls within the scope of the scheme, it will not be handled under standard complaint timelines. Instead, it will be assessed under the FCA’s redress process set out in PS26/3.
This means the 31 May 2026 deadline does not apply in the same way to all complaints.
Many complaints submitted before this date will move into the scheme and follow its timelines for review, decisions, and car finance compensation.
The FCA also recognises that complaints can include multiple issues. For example, a complaint about undisclosed commission may also include concerns about affordability.
For example firms may choose to wait to deal with non-scheme parts of complaints until they are able to provide an outcome that bundles together scheme and non-scheme elements. This is to ensure the process is as clear and streamlined as possible.
Lead times will vary and not all complaints will get a standard response from May 2026.
How Will Car Finance Compensation Be Calculated?
The FCA’s methodology is set out in PS26/3.
Most cases follow a hybrid approach, combining estimated overpayment from inflated interest with commission paid. The final car finance refund is based on an average of these figures.
Some cases may receive higher car finance compensation, including full commission plus interest, where commission levels were very high and disclosure was poor.
The FCA uses standard modelling assumptions, including a 17 percent adjustment for newer agreements and 21 percent for older agreements.
Compensation includes simple interest based on the Bank of England base rate plus 1 percent.
The FCA estimates average car finance refunds of around £829 per agreement. Not all car finance claims will result in compensation.
PCP Claims and Car Finance Claims
A PCP claim is a car finance claim. PCP stands for personal contract purchase. PCP deals are normally made up of a deposit, monthly payments and a final balloon payment. A large number of PCP claims involve hidden commission or unclear terms. PCP deals may be eligible for a PCP refund through the FCA scheme.
What Should You Do Now?
There is no advantage in delaying your car finance claim.
Submitting early ensures your complaint is logged and ready for review. It may also increase the likelihood of being included in early payouts 2026 decisions.
If you are unsure, a car finance refund check or speaking with a finance claims expert can help clarify your position.
Popular Lenders and What Mis-Selling Looked Like
These are the lenders most regularly referred to in complaints, FCA reviews and various discussions about historic commission practices. This is a summary of the type of issues which were most frequently reported by drivers in the period before the rules around commissions changed in 2021.
They are not findings of wrongdoing in individual cases. They highlight recurring themes that may help you recognise issues in your own agreement.
Customers complain Alphera frequently never explained their interest rate. Some customers found out later that it was higher than they should have qualified for. There may have been commission built into the deal that was not disclosed.
Drivers often thought the dealership was comparing several lenders. In fact, Audi Finance was sometimes presented as the default choice. This could sometimes lead to rates that didn’t take into account the customer’s financial position or wider market alternatives.
Some customers say there were fees and add-ons explained in an unclear way. Others claim commission was not properly explained and there was no transparency over how the final rate was calculated.
Black Horse is consistently amongst the referenced lender in complaints for car finance deals, with drivers stating that their rate was increased because of commission payments and with little/no explanation as to why.
Customers saying they are confused as to why/how their deal was priced e.g. rates were too high for their creditworthiness.
The common complaints are no credit checks and pressure you based on how much you want to borrow not how much it will cost you. Others state commissions and rate structure was not discussed.
Many of the complaints revolve around unexpectedly large balloon payments that were not made clear from the beginning. Some borrowers with excellent credit have also complained of being offered interest rates higher than they expected without an explanation.
Drivers sometimes say they were not told how broker incentives worked. Others report unclear fees or charges that were not properly explained during the agreement process.
Close Brothers played a central role in the Supreme Court case that helped define how undisclosed commission is assessed under UK law. Many customers say dealers increased interest rates to earn more commission, without explaining that this could happen.
Clydesdale Bank Finance Claims
Consumers complained about unclear fees and a lack of transparency with regard to commission. A few learned only after signing that the dealer benefited financially from structuring the agreement as he did.
The most common complaints are balloon payments and mileage not being disclosed. There are also customers who say the interest rate was higher than what they qualified for.
Customers have stated that their interest rate was not fully justified or explained to them. Customers were unaware of the effects commission may have had on the way the deal was structured until later on.
Drivers were allegedly offered higher interest rates without an explanation as to why. Customers claim that dealer incentives or commission was never openly discussed in the sales process.
MotoNovo featured heavily in the Supreme Court case. Consumers have complained about inadequate disclosure and high-pressure sales tactics that gave you no time to see how the agreement actually broke down.
Customers frequently complain of opaque pricing and lack of clarity as to how interest rates were agreed. Some allege they were pressured into an agreement without being given time to understand key terms.
Drivers have reported add-ons or extras they did not clearly agree to. Drivers also report that the issue of commission was only briefly touched upon without providing a full picture as to how the agreement was priced.
Customers commonly claim that their APR was higher than expected or changed part way through the process. The commission element was also often not fully explained leaving customers in the dark as to how their rate was calculated.
People have commonly complained about balloon payments and mileage limits not explained well. Customers were not made aware of these costs until after signing their agreement.
Drivers say there are discrepancies between what they agreed to in the showroom and the final contract. Commission was secretly added, some say.
VW Finance drivers were led to believe the dealer was shopping the market. Agreements were typically tied to one lender. Issues include hidden commission and mark-ups on rates.
Final Thoughts
Timeline for redress scheme relating to the car finance scandal has now been confirmed by the FCA in PS26/3.
This should mean a standardised process going forward for handling car finance claims. This will cover PCP claims and any PCP refunds.
Not every claim will result in a payout for consumers. However, many consumers could be eligible to receive a car finance refund.
If you suspect that you may have been mis-sold car finance, taking action now will enable you to know where you stand and prepare for the next stage of the claims process.
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References:
- In March 2026 the Financial Conduct Authority (FCA) confirmed the formal car finance compensation scheme in policy statement PS26/3 - https://www.fca.org.uk/publication/policy/ps26-3.pdf
- Average car finance refunds are estimated at around £829 per agreement, based on FCA modelling - https://www.fca.org.uk/publications/policy-statements/ps26-3-motor-finance-consumer-redress-scheme
- In 2021 the FCA banned discretionary commission agreements - https://www.fca.org.uk/news/press-releases/fca-ban-motor-finance-discretionary-commission-models
- The Supreme Court heard cases against lenders - https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf
- The pause on car finance claims ends on 31 May 2026 - https://www.fca.org.uk/news/statements/pause-motor-finance-complaints-handling-lift-31-may-2026