Overview

If you took out car finance in the last 17 years, you could soon be owed money.

The Financial Conduct Authority (FCA) has proposed a nationwide compensation scheme that could refund millions of UK drivers who were unknowingly overcharged on their car finance. The issue centres on undisclosed commission arrangements between lenders and brokers. These arrangements often meant that people paid more interest than they should have.

The new proposal aims to bring clarity to the car finance mis-selling and car finance scandal UK that has affected millions of drivers. It covers agreements made between 6 April 2007 and 1 November 2024, including popular options such as Hire Purchase (HP) and Personal Contract Purchase (PCP).

According to the FCA, around 14 million car finance agreements could qualify for compensation, with average payouts of around £700 per customer. In total, lenders may have to return more than £8 billion to consumers [1].

The FCA is consulting now, with the scheme expected to launch in 2026 if confirmed.

In this article

In this guide, you will learn:

• Why the FCA is proposing a compensation scheme
• Which car finance agreements are covered
• The three types of unfair arrangements that could make a deal eligible
• How compensation will be calculated
• What the process will look like for drivers
• Whether you can make a claim yourself or use a claims management company
• What steps you can take now to prepare

Why the FCA is proposing a compensation scheme

For a long time, many customers were not told how brokers and dealers were paid. In some cases, brokers could increase the interest rate and earn more commission for doing so. That puts the broker’s interest ahead of the customer’s interest.

The FCA looked at more than 32 million agreements and found that these practices were widespread [2]. A lack of transparency created unfair relationships between borrowers, brokers and lenders.

In August 2025, the Supreme Court ruled that a lender acted unfairly where there was a high, undisclosed commission and a close tie with a broker that was not made clear [3]. That decision provided the legal clarity the FCA needed. The regulator now wants a single scheme so people can be repaid fairly without years of complaints or court cases.

What the scheme would cover

The FCA’s proposal covers regulated car finance agreements where:

• The agreement was taken out between 6 April 2007 and 1 November 2024
• A lender paid commission to a broker or car dealer
• The commission or relationship between the broker and lender was not clearly disclosed

This applies to most Hire Purchase (HP) and Personal Contract Purchase (PCP) agreements. It does not include leasing contracts, as they are not covered under the same consumer credit laws.

The FCA estimates that about 44 per cent of car finance agreements (14.2mn) made during this period could meet the eligibility criteria [4].

The three types of unfair arrangements

The FCA identified three main types of commission arrangements that could make a finance deal unfair if not properly explained [5].

1) Discretionary Commission Arrangements

Some brokers were allowed to adjust your interest rate. The higher the rate they set, the more commission they earned. Customers were rarely told this, meaning two drivers could buy similar cars on the same day but pay very different interest rates.

2) High Commission Arrangements

These are cases where the broker’s commission made up a large portion of the total cost of credit. The FCA defines “high commission” as 35 per cent or more of the total cost of credit and 10 per cent or more of the loan amount. Customers should have been told about these payments so they could make an informed decision.

3) Exclusive or tied lender arrangements

Some brokers had exclusive partnerships with particular lenders, which limited the options available to customers. Many people believed they were being offered the best deal, when in fact they were not being shown all the choices available.

If any of these features were not disclosed, the FCA says the agreement should be treated as unfair.

How compensation will be calculated

The FCA wants a method that is fair for customers but practical for lenders who need to handle millions of cases [6].

The hybrid approach

Most payouts will follow a hybrid calculation, based on the average of:

• The estimated amount the customer overpaid because of the hidden commission
• The total commission paid on the agreement

For example, the FCA found that a 10 per cent APR loan with an undisclosed discretionary commission would likely have been around 8.3 per cent if the arrangement had been transparent. That 17 per cent difference forms part of the compensation formula.

Commission plus interest for serious cases

A smaller number of serious cases, sometimes referred to as “Johnson-type”, will receive the full commission amount plus interest. These involve a contractual tie between lender and broker and a very high commission of at least 50 per cent of the total cost of credit and 22.5 per cent of the loan amount.

Interest on compensation

Simple interest will also be added at the Bank of England base rate plus one percentage point for each year. The FCA estimates an average rate of 2.09 per cent.

Expected payouts and total redress

Based on the proposed scheme, the FCA expects most eligible consumers to receive an average of around £700 per agreement. There will be a wide range of outcomes. Some drivers may receive more, depending on their loan size, the level of commission involved and the interest rate they paid. Others may receive a smaller amount.

The regulator estimates that around 85 per cent of eligible consumers will take part in the scheme. If that happens, lenders would owe roughly £8.2 billion in compensation.

If participation were lower, at around 70 per cent, total redress would still reach about £6.8 billion. In the unlikely event that everyone takes part, the total payout could rise to nearly £9.7 billion.

Taking everything into account, including the cost for lenders to run the process, the FCA believes the total cost of the scheme will be around £11 billion.

This would make it one of the largest consumer compensation efforts ever seen in the UK, helping to resolve years of car finance mis-selling and offering fair refunds for those affected by mis-sold car finance and PCP claims.

Source: FCA CP25/27 Motor Finance Redress Scheme [7] 

How the scheme will work

The FCA’s goal is to make the process easy to access and simple to understand.

Step 1: Lenders identify affected customers

Lenders will review their records and contact customers who may qualify.

Step 2: If you have already complained

If you have already complained about mis-sold car finance or undisclosed commission, your lender will include you in the scheme automatically unless you opt out. You will be contacted within three months of the scheme starting and given a month to decide whether to stay in.

Step 3: If you have not complained yet

If you have not complained, your lender should contact you within six months of the scheme launching. You will then have six months to opt in.

Step 4: If you are not contacted

If your lender no longer has your details, you can still take part. You will have one year from the scheme start date to contact your lender and request a review.

Step 5: Review and decision

The lender will review your case and calculate any redress according to FCA rules. If you disagree with the result, you can ask the Financial Ombudsman Service to check whether the scheme rules were followed correctly.

What happens next [8]

The FCA’s consultation on the car finance compensation scheme is now open, giving lenders, consumer groups and the public a chance to share their views.

You can send feedback on the proposed redress scheme until 18 November 2025. There is also a separate deadline of 4 November 2025 for comments on the proposal to extend how long firms have to provide a final response to motor finance complaints.

The FCA will review all feedback and confirm by 4 December 2025 whether it will extend this complaint-handling deadline. If the extension goes ahead, lenders will have until 31 July 2026 to send final responses to relevant motor finance complaints. This is designed to give firms enough time to deal with cases consistently once the new framework is in place. However, the FCA may shorten this period depending on when the final rules are confirmed.

It is important to note that this extension will not apply to car leasing complaints. Leasing agreements are not covered by the same legislation on unfair relationships and are therefore excluded from the proposed redress scheme. As a result, firms must begin sending final responses to motor leasing complaints from 5 December 2025.

If the FCA decides to introduce a full car finance redress scheme, it expects to publish its policy statement and final rules in early 2026. The scheme would launch at the same time, with compensation payments beginning later in 2026.

This timeline reflects the regulator’s goal of ensuring a smooth, fair and consistent rollout while giving both consumers and firms time to prepare for one of the largest car finance claims programmes in UK history.

Do you need a claims management company or solicitor?

You can make a complaint yourself directly to your lender, and the FCA scheme will be free to use once it begins.

However, many people prefer to work with a trusted claims management company like Reclaim247. A professional PCP claims company or finance claims expert can help trace your old finance agreements, especially if you have moved house or no longer have paperwork.

The FCA found that 41 per cent of people who are aware of possible car finance claims do not realise they can apply for compensation. Many drivers also struggle to find out which lender they used or whether commission was involved.

Reclaim247 can help by tracing your finance history back to 2007, using just your name, address and date of birth. There is no paperwork and no upfront cost. This kind of support ensures that more people affected by car finance mis-selling are not left behind.

Why the FCA’s scheme matters

Without this scheme, millions of drivers would need to go through the courts or make individual complaints, which could take years and cost more.

The FCA’s proposal aims to:

• Provide fair and consistent compensation for everyone affected
• Simplify the process so more people claim successfully
• Restore trust in the car finance industry
• Offer both customers and lenders certainty and closure

This is a major moment in resolving the car finance scandal that has affected so many people in the UK.

What you can do now

You do not need to wait for the scheme to start. You can prepare now:

• Check if you had car finance between 2007 and 2024. Even settled agreements could be eligible.
• Find out who your lender was. Reclaim247 can help trace this for you.
• Update your contact details. Make sure lenders can reach you.
• Keep your documents. Finance contracts, bank statements or emails can be useful.
• Stay informed. The FCA will publish final guidance in early 2026.

Frequently asked questions

Will everyone get compensation?

No. Only agreements that involved one of the three undisclosed arrangements will qualify.

How much could I get?

The FCA expects average payouts of around £700 per agreement, but the amount could be higher for some customers.

Can I go to court instead?

Yes. You can choose not to join the scheme and take your case to court. It might take longer and cost more, but it remains an option.

Does this include car leasing?

No. Leasing agreements are not covered, and firms must start sending final responses to leasing complaints from 5 December 2025.

What if I have no paperwork?

You can still claim. Lenders keep their own records, and finance claims experts can help trace your agreements.

Looking ahead

This could become one of the largest consumer compensation programmes in UK history. It aims to fix past car finance mis-selling while keeping the market stable and competitive.

The FCA expects most lenders to handle the costs without major disruption, meaning car finance should remain available and transparent for years to come.

Final thoughts

For many drivers, this marks an important step towards fairness. It is a chance to get money back from mis-sold car finance and to finally close the chapter on the car finance scandal.

If you had a PCP or HP finance agreement between 2007 and 2024, it is worth checking whether you could be eligible. You can claim directly for free, or you can choose to work with a trusted PCP claims company like Reclaim247, who can handle the process for you from start to finish.

Reclaim247 can trace your car finance history back to 2007 using only your name, address and date of birth. There is no paperwork and no upfront cost.

Your old car finance deal could still be hiding compensation. Visit Reclaim247.co.uk to check your eligibility today.

Stay informed on the FCA’s latest October 2025 proposal about car finance compensation and what it could mean for drivers affected by mis-sold agreements.

Latest Updates on Car Finance Claim Settlements in the UK

Car Finance Scandal Explained

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References:

1. According to the FCA, around 14 million car finance agreements could qualify for compensation, with average payouts of around £700 per customer. In total, lenders may have to return more than £8 billion to consumers - https://www.fca.org.uk/news/press-releases/14m-unfair-motor-loans-compensation-proposed-scheme

2. The FCA looked at more than 32 million agreements and found that these practices were widespread - https://www.fca.org.uk/news/statements/fca-consults-motor-finance-compensation-scheme

3. In August 2025, the Supreme Court ruled that a lender acted unfairly where there was a high, undisclosed commission and a close tie with a broker that was not made clear - https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf

4. The FCA estimates that about 44 per cent of car finance agreements (14.2mn) made during this period could meet the eligibility criteria - 1.22: https://www.fca.org.uk/publication/consultation/cp25-27.pdf

5. The FCA identified three main types of commission arrangements that could make a finance deal unfair if not properly explained - 1.21: https://www.fca.org.uk/publication/consultation/cp25-27.pdf

6. The FCA wants a method that is fair for customers but practical for lenders who need to handle millions of cases - 1.25-1.32: https://www.fca.org.uk/publication/consultation/cp25-27.pdf

7. Source: FCA CP25/27 Motor Finance Redress Scheme - 1.30-1.32: https://www.fca.org.uk/publication/consultation/cp25-27.pdf

8. What happens next - 1.38-1.39; 1.47-1.52: https://www.fca.org.uk/publication/consultation/cp25-27.pdf