Car Financing has been a prominent way of securing car ownership as almost 90% of UK cars are acquired through the car finance market, but alongside its popularity is the intense scrutiny it has received from the public eye, brought about by misleading financial practices that have caused millions of consumers to seek redress. The job of the Financial Conduct Authority (FCA) begins here.

Acting as the UK’s chief financial watchdog, the main job of the FCA in this car finance scandal, is to ensure that car financial markets operate with transparency, honesty and fairness at all times. They cover everything finance-related, from banks to brokers, and extend to over 50,000 firms. FCA is the regulatory body that covers all these, including the car finance market. 

While it may appear they favour consumers, as they are who you can come to in case you’re seeking financial redress, the FCA remains a regulatory body that helps in ensuring fairness is met in both parties, may it be the consumer or the provider side. 

Now what role exactly does the FCA play in the case of the ongoing car finance scandal and how does the FCA protect consumers? They take the centre stage in identifying these harmful practices that companies make, hold companies accountable, and push for fair compensation for consumers. In fact, its recent rulings on the car finance scandal have shaken the industry. The FCA ruling on car finance could even lead to billions in redress, causing significant impact on the economy of car financing in the UK. 

In summary, the Financial Conduct Authority is responsible for monitoring the UK's financial services. Its goals include protecting consumers from unfair practices, maintaining market stability and promoting healthy competition between companies. Alongside them is the HM Treasury and Bank of England whose goal within here is to ensure fairness is implemented in all transactions. To understand better, here’s a detailed look at the FCA’s role:

1. Protecting consumers – The FCA ensures that all financial firms treat their consumers and customers with all fairness, while providing products that meet their needs and protect them from misconduct. 
2. Maintaining Market Stability – The FCA, through its role, has contributed immensely to creating a stable financial system as it regulates the conduct of financial institutions and supervises key firms with prudentiality. 
3. Promoting competition – The FCA creates balance in the system and in the market by encouraging and ensuring there remains a healthy competition in the financial services industry. Competition leads to better products and services for consumers, as it disrupts any possible capitalism that may occur. 
4. Independent Body – The FCA acts independently of the UK government, which means that they remain bias-free and non-partisan. This way, it can remain accountable and impartial through its regulatory activities. 

Its key focus are the following:

• Conducting regulations: The FCA’s job is focused on regulating the conduct of around 42,000 businesses all over the UK, making sure each operates fairly and transparently at all times. 
• Prudential regulations: The FCA prudentially supervises over 41,000 firms, which include banks, insurers and building societies to guarantee financial soundness is met as prescribed by the regulatory body.
• Working with other bodies: The FCA remains collaborative with different relevant entities, which include the Prudential Regulation Authority (PRA) and the Financial Services Compensation Scheme (FSCS), in fulfilling this regulatory mandate. 

How the FCA Oversees Car Finance Agreements

Car finance agreements have this undeniable popularity, but they do have their setbacks – complexity, particularly for the Personal Contract Purchase (PCP) and Hire Purchase (HP) arrangements. Given this, the FCA ensures lenders do the following in all their transactions:

1. Conducting proper affordability check – All PCP and HP agreements require affordability checks to guarantee that the borrower will be able to afford the cost of the agreement they are making, and that they won’t encounter any financial problem or distress in the foreseeable future. 
2. Disclose interest rates and commission structures – Lenders should be able to disclose interest rates and commission structures to borrowers, or else, it can raise suspicion regarding intentional mis-selling. 
3. Avoid misleading sales tactics – All financial institutions are required to practice fairly and avoid leading clients to deals and agreements that will end up being unfavourable for them. 

In the past, dealerships and brokers were allowed to freely set their interest rates and base them on the commission incentives they get, which has become a system ripe for abuse. With the FCA stepping in, this common practice is now banned, especially after learning that customers were unknowingly overcharged, given the bias from brokers being able to manipulate rates. The FCA also realised that better terms are attainable without the salesperson’s commission interest.

The Impact of FCA Interventions on Consumer Protection

Since the Financial Conduct Authority in the UK is a financial regulatory authority, it aims to ensure no one is treated unfairly, especially on the consumer’s side. Under the FCA’s eyes, all financial firms are required and encouraged to act in good faith to avoid any foreseeable harm that may come back onto them in case they violate regulations. The FCA also ensures they provide consumers with support especially when pursuing financial objectives, like car finance claims. Moreover, the main goal is to prevent finance-related crimes and improve redress frameworks to enable consumers to help themselves. This was the highlight of the released Outcomes and Metrics from 2022 to 2025. 

How does the FCA protect consumers then? This has been a key question driving public attention as of the moment. If you too are wondering, here’s how FCA intervenes:

1. By Banning Discretionary Commission Arrangements

Since 2021, DCAs have been dubbed banned by the FCA after the discovery on how much impact these commissions caused to finance agreements. Through this, they are able to eliminate the practice of inflating interest rates in exchange for higher commissions for the dealers and brokers.  

2. Launching reviews and investigations into finance practices

Rather than simply sit and watch complaints on car finance agreements increase, the FCA continues to launch reviews and car finance investigations into these finance practices to know more about the depth of these mis-selling and strategise on how this can be decreased and eliminated.

3. Pushing for redress schemes 

Beyond investigations, the FCA ensures that they are able to correct these systems that have been affecting consumers in the process. This is by pushing and encouraging customers to seek redress and keep their lenders accountable for these malicious practices.

Here, the goal isn’t simply to right and correct past wrongs and mistakes but also to ensure a fairer car finance market in the future. 

FCA Rulings on Car Finance: What Has Been Decided?

There have been multiple changes throughout the years, and here we’ll give you a rundown of the most significant timelines and the decisions made on each:

1. Crackdown on DCAs

Considering the number of complaints consumers have about their car finance agreements and the soaring costs, the FCA discovered how Discretionary Commission Arrangements have been a culprit in these mis-selling claims. Under DCAs, brokers and car dealers are given this discretion to increase the interest rate on customer car finance agreements, because it increases the commission they receive as well. Since these two variables are linked together, dealers are able to charge excessively without borrowers noticing at all. 

With this created a clear conflict of interest, where brokers are quietly encouraged to prioritise their best interest over the consumers, as it can boost their earnings too. The FCA saw this model as rampant, exploitative, and inherently unfair as it has led to not only inconsistent pricing, but also consumer detriment.

This DCA ban has been essential in signifying a major regulatory shift, which emphasised fairness and transparency in the financial products that are being offered to consumers, and has then also laid a clearer groundwork for scrutiny into their car finance practices. 

2. FCA Investigation into Car Finance Mis-Selling (2024)

The FCA has been investigating consumer complaints since 2024. In fact, it was also the surge in consumer complaints that led to these comprehensive reviews. These complaints also largely focused on whether customers were misled or overcharged due to how the commissions were previously structured. 

As a significant move, the FCA paused handling of individual consumer complaints which are all related to commission-based pricing since January 2024, which then signals that issues could be systematic too. This exact step has been vital in hinting at the possibility of creating a widespread redress scheme, close to what was implemented and applied for the Payment Protection Insurance (PPI).

3. What the FCA Is Deciding Now

Apart from the ongoing investigations, the FCA is also assessing the extent of consumer harm these unfair commission practices have caused consumers. Knowing this will allow FCA to determine how to compensate these affected consumers as well. What’s crucial here is that this review isn’t only for the mis-selling practices in today’s time; rather, it covers those agreements between 2007 and 2021, a period where DCAs were even more popular. 

The Supreme Court ruling regarding this large-scale compensation program has been concluded and a decision will be announced in the next couple of months. This final FCA decision on car finance will dictate significant changes in the car finance industry and can even cause financial implications for motor finance lenders and brokers. 

What It Means for Consumers

Consumers who took out loans between 2007 and 2021 can be eligible for claims on their car finance agreements. But it will still depend on the FCA’s final ruling. So if you think you’ve been mis-sold an agreement, then it’s recommended to make your case now, and just wait until the FCA completes its review and issues formal guidance for the payouts. This way, you can ensure you’re kept in line as this will definitely take longer than anticipated.  

Companies Involved in the UK Car Finance Scandal

There are multiple companies that were involved in the UK Car Finance Scandal, so no firm is really exempt on the public scrutiny that now exists in the car financing space. Currently, the FCA has not released an official list of companies that will be put under formal investigation yet, but with the growing body of legal reviews and consumer complaints, it's likely that a significant number of major finance providers are involved. The use of Discretionary Commission Arrangement wasn’t limited to big or small-scale finance firms too, and this now-banned practice has led to consumers being charged inflated interest rates on car loans. What companies are involved in the car finance scandal?

Here are some of the Financial Institutions that have been implicated in the car finance mis-selling scandal:

• Barclays Partner Finance

Playing a key role in consumer credit, Barclays Partner Finance is among the companies mentioned in the various legal complaints that were raised, concerning that its commission structures were not disclosed to the customers.

• Black Horse (Part of Lloyds Banking Group)

Black Horse is one of the UK’s largest motor finance lenders, and it too has faced massive scrutiny with regards to its brokers using DCA to maximise commissions at the expense of customer fairness. 

• MotoNovo Finance

If you’ve financed through MotoNovo Finance, then it’s possible you are eligible for compensation too. It’s one of the most widely used financing dealerships across the country, and it is among the finance companies under the spotlight brought about by its malicious commission structure. 

• Close Brothers Motor Finance

A car financing company popular for offering flexible finance solutions to buyers, Close Brothers is also referenced in consumer-led investigations and class action discussions and has allocated £165 million for compensation.

• Volkswagen Financial Services

Volkswagen is the finance arm of one of the biggest car manufacturers VW Financial Services, and it is no exception to the wider probe into these interest rates and that it was undisclosed to consumers. 

Allegedly these firms have allowed brokers and car dealerships to increase and manipulate loan interest rates, not basing it from the borrower’s credit profile but rather on how much commission they want to receive. However, this model is now dubbed by the FCA as flawed, unfair, and unlawful. 

The Role of Dealerships and Brokers: The Front Line of Mis-Selling

Dealerships and independent finance brokers all played vital roles as key intermediaries in the car finance process. Most consumers have interacted with them directly when arranging a car loan or an HP agreement, which puts them at the front line positioning. This means they serve as a considerable influence, especially to consumers who are unfamiliar with the technicalities of vehicle financing in general. As the ones on the front line, they are perceived to be trusted and credible, but often this is being jeopardised due to personal interests. 

Trust vs. Incentive: A Dangerous Imbalance

Initially, consumers believed that the finance deals they were presented with were based on their creditworthiness. However, it was later proven that this is not the case. This assumption that the interest rates being charged to them have a link to their ability to pay is a tactic salespeople would use to make the deal look more personalised and tailored for the client alone. But in reality, what many may not be aware of is the fact that this exact scheme is a way brokers can get away with manipulating interest rates for their financial gain. 

How the Scheme Worked in Practice

This scheme did not just come in handy for lenders and dealers, this was something that was also studied to avoid possible questions that may arise from consumers who may be doubting how much they were charged. The main issue of these FCA investigations is discretionary APR markups. With the power put on brokers, they are able to inflate the amount customers pay, hiding it in interest rates, rather than other fees that may be easily recognised. What’s worse is that clients have no idea there is a commission fee that affects the amount they pay. 

Let’s give a more visual example. Say, you’re a customer who initially qualified for a 7% APR, considering your credit score and profile, However upon seeing it, and brought about by the broker’s discretion, the interest rate was hiked by 3% making the APR 10% in value, so the dealer could gain the 3% difference, which wasn’t necessary at all. 

How the FCA Protects Car Finance Customers

In the midst of these mis-selling scandals, the FCA is stepping in with robust reforms with the goal of protecting consumers and preventing possible future abuses. While these protections are focused on increasing customers’ awareness, it's also made to enforce transparency and a means to hold lenders and brokers accountable. Protections like this are made to ensure fairness is practiced at all times. Alongside these are added measures to prevent mis-selling scenarios in the future, such as:

1. Stricter Rules for Fairer Deals

A way that the FCA sees fit is to introduce stricter regulations to stop and halt the misuse of discretionary commission arrangements – a system that allows dealers and brokers to artificially inflate the interest rates they charge clients so they can get higher commissions from it. Having stricter rules will prohibit these practices entirely too. In addition, lenders will be required to ensure that the brokers and sales staff they have are acting in the best interests of their consumers. With this, there will be improved training, oversight and added compliance measures. Through this, the FCA can implement even more ethical lending and borrowing practices. 

2. Increased transparency in Finance Agreements

Since most mis-selling occurs due to the lack of transparency, it has become a cornerstone in the FCA's new regulatory approach. Under these new rules, lenders will be required to explain thoroughly how they determine the interest rates they charge borrowers. It should also be in a manner that the borrower understands and fully grasps. Here, all commissions that are paid to brokers must be disclosed up front, and customers shall be told if these commissions have influenced the terms offered to them. Through this regulation, they are able to increase the clarity given to consumers, so they can make better and more informed financial decisions. 

3. Potential for Redress Schemes

With regards to concerns on these historical wrongdoings, the FCA is now exploring introducing formal redress schemes, to make everything uniform, including the process of how things can be set right in mis-sold car finance claims. Once approved, this scheme will allow eligible consumers to be compensated for the overpaid interest and other losses they incurred, without having to undergo these lengthy and tedious legal proceedings. This is ideal, as it sets a precedent for similar financial mis-selling cases. 

FCA Compensation and Payout Timeline for Mis-Sold Car Finance

Amongst the most common questions asked by affected consumers is the timeline for when the car finance scandal payout out be made.

This is crucial especially for those who badly need to recover the fees that they were owed. As of last month, April, the FCA is still finalising its review of these mis-selling practices, which includes scaling the issue and finding the best way to be able to manage repayments. 

Current expectations are that the FCA will announce its final decision regarding the redress scheme by mid to late 2025. Should a compensation model be agreed upon, payouts will begin in early 2026. You may think that the process is still slow, but it is mirrored to the timeline followed during the PPI scandal, which led to a comprehensive refund process after thorough proceedings.  

It is also important to keep in mind that the Supreme Court's July decision will have a significant impact on the FCA's ruling and might significantly change the course of the redress procedure.

What Affected Customers Need to Do to Claim Compensation

If you were affected by these mis-selling tactics, then you don’t have to wait for the official redress scheme to take action. You can take the first steps yourself through the following steps. First, ensure that you review your car finance agreement thoroughly. Check the amount of interest rate applied and assess any mention of broker commission. Is the rate you’re being charged excessively high? If yes, then that is exactly a sign of mis-selling, and you shouldn’t just let this go. 

Contact your finance provider right away and raise your concern. If you get an unsatisfactory response, or should the lender try to deny all his wrongdoing, then know that you are entitled to file a formal complaint. As per law, lenders will be given up to eight weeks to respond. If by chance, your complaint gets rejected and ignored, then the next step is to escalate the matter to the Financial Ombudsman Service (FOS) so they can create an independent review of the matter. 

The Role of the Financial Ombudsman Service (FOS)

At present, the Financial Ombudsman Service (FOS) is already packed with managing thousands of complaints which are related to car finance mis-selling. However, you must know that most cases they’ve been handling are currently paused pending the outcome of the FCA’s investigation. Once the FCA reaches a verdict, the FOS can then proceed with processing these complaints again, to ensure that consumers are able to seek and reach redress. 

The FOS plays a crucial role in ensuring that fairness is met, especially at times when lenders refuse to acknowledge misconduct. The most important part here is that the service they give you is free of charge and remains impartial. With this, it becomes accessible to all consumers regardless of their financial situation or standing. 

How to Check Mis-selling in your Car Finance

If you’re still on the road to determining whether you were mis-sold, then asking a few questions to assess your finance agreement may be an ideal step. Simply think of how your finance agreement was arranged and communicated. Many of the affected consumers easily trusted the advice of their car dealers and brokers, without hinting or realising that they may have been looped into these mis-selling practices, of intentionally ballooning interest rates for their financial gain. 

To evaluate your situation, consider asking the following questions:

1. Was the interest rate correctly explained to you?

The absence of interest rate transparency is one sign of misselling. This is information that should have been presented and disclosed to you by your lender, and if not, then it can be a sign of mis-selling.

2. Were you led to believe that the rate offered to you was based on your credit score?

Most people who fell victim to these mis-selling practices initially thought that the interest rate they were charged was based on their credit scores, when it was intentionally based on the amount of commission the dealer wanted to get. There may have been better rates, except you were kept in the dark bout it, simply for them to earn higher commission rates. 

3. Did the salesperson tell you they were earning commission?

If your salesperson received any form of commission, they should disclose this right away, as failure to do so may mean they were financially rewarded for selling you a more expensive deal. 

4. Was the interest rate higher compared to other options?

After comparing the rate you received from other APRs, was it significantly higher than the above market averages? If yes, and it wasn’t properly justified, then you may have been overcharged. 

If the answer to one or more of these questions is “no” or raises concerns, it’s highly likely that your car finance deal involved elements of mis-selling, especially if it was fixed or initiated between 2007 and 2021, the period under review by the FCA.

Steps to File a Claim and Seek Compensation

After identifying potential signs of mis-selling, it’s time to begin the process of the claim. You won’t always need legal representation or third-party assistance, but getting or hiring on isn’t totally bad either. Many consumers were able to make successful claims, thanks to claim management companies that supported them in the process. Here, we’ll break down the steps you would need to take to seek compensation on your own:

1. Gather Your Documentation

Locate your original finance agreement, and re-check any written quotes, dealership correspondence and also your track of repayment history. Having these documents can allow you to understand the rate you were charged and if the commission was properly disclosed. 

2. Submit a Complaint to the Finance Provider

Write a formal complaint to your lender (the finance company, not the dealership) and explain thoroughly why you believe you were mis-sold and the technicalities of your finance agreement. Mention anything that may help you raise your case, such as unjustifiably high commissions, and fees that weren’t disclosed. In your letter include your request for compensation on the overpaid interest and that you’re asking for a full investigation into your case.

3. Wait for a response (up to 8 weeks)

Legally, finance providers are given up to eight weeks to respond on claims and complaints. They can reject your claim, provide a remedy, or support your complaint.The various decisions will depend on how you presented your claim and how the finance company absorbed it.

4. Escalate to the FOS.

If you still don’t feel happy with how your lender responded or think that the claim you’re being offered is way too low for the compensation you deserve, then the next step is to escalate to the Financial Ombudsman Service. They will then provide you with an independent impartial service to resolve financial disputes. Don’t worry as this one is free of charge for consumers and can even result in a successful refund plus compensation for the distress and inconvenience this has caused you. 

5. Consider tapping Legal or Claims Management Companies for support

There are many legal firms offering services to help you with your car finance claim, and a lot of claim companies have now been ramping up for mass claims, but you have to remain cautious about the percentage they may take after the refund is processed. However the best thing about claims management companies is that there are ones that offer a ‘no win-no fee’ policy, which means you won’t have to worry about initial costs to shoulder.

Conclusion

The FCA has not yet launched a formal redress scheme, but the expectation is that a compensation model will be confirmed sometime in mid to late 2025, with payouts potentially beginning in early 2026. Because this situation is evolving, it’s vital to stay informed so you can act quickly if new redress routes become available. 

Staying proactive and informed on situations like this can make a big difference in ensuring you receive fair treatment and don’t miss out on possible compensation. Whether or not a formal scheme is launched, lenders are already under pressure to address complaints fairly, and the more prepared you are, the better your chances of getting redress.