Overview

LONDON - Carmakers look set to avoid direct financial exposure under a potential £11 billion UK motor finance redress scheme [1], even as the wider car finance scandal continues to gather momentum. At the same time, a litigation funder that had backed cases linked to car finance claims is seeking to raise fresh capital after suffering losses tied to the unfolding dispute [2].

The developments underline both the scale of the issue and the complex web of lenders, manufacturers, investors and consumers now navigating the consequences of alleged car finance mis-selling.

A narrower redress scheme taking shape

Preliminary figures indicated there could be up to £11 billion worth of mis-sold car finance in the UK. Anxiety spread through car industry channels that vehicle manufacturers may have to foot the bill for car finance compensation in instances where cars have been sold on dealership finance packages subsequently disputed by the customer.

Talks over how a compulsory scheme would work suggest motor manufacturers may escape liability and the onus could be on lenders. If so, that would be an important distinction. Car finance agreements were underwritten by lenders – high street banks and specialist finance firms. Manufacturers have been tied by their association with dealerships but may ultimately escape having to pay out on car finance claims themselves.

For manufacturers already contending with supply chain pressures and the transition to electric vehicles, avoiding an additional multi-billion pound burden would represent a substantial relief.

The roots of the car finance scandal

The issue is linked to the discretionary commission schemes which used to feature in motor finance agreements such as personal contract purchase deals. Dealers would hike interest rates to receive higher commissions in some instances without customers fully appreciating how pricing had been calculated.

First banned by regulators in 2021, customers are now waking up to discretionary commissions and how they may have affected how much interest they paid [3]. Over recent months we’ve seen a sharp increase in the number of car finance claims and PCP claims.

Some people have contacted us about getting a car finance refund when they realise they may have overpaid in interest. Others are claiming additional car finance compensation when they believe instances of car finance mis-selling occurred.

In the coming months it will be clear whether all claims are assessed uniformly or whether an industry-wide scheme is implemented following regulator rulings.

Litigation funder feels impact, seeks new capital

While manufacturers may be edging towards a reprieve, parts of the litigation funding market have already felt the financial strain.

One UK litigation funder that supported group actions linked to car finance claims has been left exposed after legal developments reduced the short-term value of certain cases. Court rulings and regulatory clarifications have shifted expectations around how car finance compensation might ultimately be structured.

The funder is now raising fresh capital in an effort to stabilise its position and continue investing in large-scale consumer disputes. Litigation funding can play a key role in enabling consumers to pursue complex claims, including those involving PCP claims and wider allegations of car finance mis-selling. However, returns depend heavily on legal outcomes, which can change rapidly.

The renewed fundraising suggests investors still see long-term potential in consumer redress markets, even if the path has proven volatile.

What this means for drivers

For drivers considering a car finance claim, the debate over who ultimately funds compensation may seem secondary. Most are focused on a simpler question: were they treated fairly?

Thousands of motorists are now reviewing agreements signed several years ago. Many remember the day they collected their vehicle but not the finer details of the finance terms agreed in a showroom environment. Discovering that interest rates could be adjusted to increase commission has prompted many to consider whether mis-sold car finance may have occurred.

Importantly, the potential narrowing of liability to lenders does not affect a consumer’s ability to pursue car finance claims or PCP claims. Where wrongdoing is established, drivers may still be entitled to a car finance refund or broader car finance compensation.

A sector still adjusting

The car finance scandal continues to reverberate across the financial and automotive sectors. Banks are strengthening provisions. Carmakers are monitoring developments closely. Litigation funders are reassessing risk models. Authorities consider the fairest way to balance consistency and financial stability.

Billions are on the line, so whichever way the final remedy plan is designed, it will set a precedent on how to handle the mis-selling of car finance and who should bear responsibility industry-wide.

For now, manufacturers are looking nearer to escaping any direct hit with lenders/investors continuing to take the brunt [4]. Meanwhile, drivers across the UK are left to decide whether to submit a car finance claim, pursue PCP claims or seek clarity on whether they are owed a car finance refund as the story continues to unfold.

_________

References:

1. Carmakers look set to avoid direct financial exposure under a potential £11 billion UK motor finance redress scheme - https://www.ft.com/content/bc45946e-3751-402c-94b8-947d2fc41717
2. a litigation funder that had backed cases linked to car finance claims is seeking to raise fresh capital after suffering losses tied to the unfolding dispute - https://www.insurancejournal.com/news/international/2026/02/17/858184.htm
3. First banned by regulators in 2021, customers are now waking up to discretionary commissions and how they may have affected how much interest they paid - https://www.fca.org.uk/news/press-releases/fca-ban-motor-finance-discretionary-commission-models
4. lenders/investors continuing to take the brunt - https://www.telegraph.co.uk/money/bills/cars/millions-could-be-wiped-from-car-finance-compensation/