Updated: 13 October 2025

Originally Published: 30 June 2025

Car Finance Mis-Selling Developments: Latest Response from FCA

In early October 2025, FCA released a consultation for the guidance on a formal redress scheme and the period for it to be open which will be 6 weeks. The proposed new motor finance compensation scheme [1] is the result of a multi-year investigation into how millions of motorists were overcharged as a result of hidden commissions and undisclosed links between brokers and lenders.

The Financial Conduct Authority’s proposed redress scheme is designed to apply to regulated motor finance agreements in which a lender paid commission to a broker. It would apply to agreements made between 6 April 2007 and 1 November 2024, the period during which firms’ legal and regulatory responsibilities were in force.

However, not all agreements will be eligible for redress. The FCA believes that there may be as many as 14.2 million agreements that are, or may be, unfair, or about 44% of all car finance loans made since 2007. In most cases, this is due to one or more of the following three elements not being made clear:

• Discretionary commission arrangements (DCAs) – where brokers had the freedom to adjust interest rates to increase their commission.
• High commission structures – defined as commission equal to or exceeding 35% of the total credit cost and 10% of the loan amount.
• Exclusive or preferential contracts – giving certain lenders special rights such as exclusivity or “first refusal” agreements with brokers.

The FCA clarified that these thresholds are specific to this redress scheme and should not be applied as general benchmarks across other financial sectors. Additionally, the regulator proposes that lenders should have the opportunity to challenge the presumption of unfairness in specific situations, such as when they can demonstrate that full disclosure was made to the consumer, or that the broker offered the lowest possible rate without receiving additional commission.

Who Is Still Eligible to Claim?

You may still be able to get redress if:

• You entered into a regulated motor finance agreement on or after 6 April 2007 and before 1 November 2024.
• Your broker or dealer did not make it clear that a commission would be paid, or did not explain their discretion in setting your interest rate.
• You were not given a chance to understand how your rate was calculated, or if it was inflated for profit.

Don’t have the paperwork (or the car)? Your lender’s own records could be used to evidence your claim.

How Much Compensation Could I Receive?

The FCA wants a method that is fair to customers, but which is also practical for lenders to implement when assessing millions of cases [2].

The hybrid approach 

The majority of payouts will be a hybrid calculation based on the average of:

• The amount that the customer is estimated to have overpaid as a result of the hidden commission
• The total commission paid on the agreement 

For example, the FCA found that a loan with a 10 per cent APR and an undisclosed discretionary commission would likely have been about 8.3 per cent if the agreement had been transparent. That 17 per cent difference is part of the formula for calculating the amount that should be paid as compensation.

Commission plus interest for serious cases 

A small number of more serious cases, sometimes called “Johnson-type” cases will get the full commission amount plus interest. This is where there is a contractual tie between lender and broker, and the commission is very high (at least 50 per cent of the total cost of credit and 22.5 per cent of the loan amount).

Interest on compensation 

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

The FCA estimates that compensation awarded through the proposed redress scheme would average around £700 per agreement [3]. Depending on how many consumers participate, total payouts could reach up to £8.2 billion. The individual share-out amount will depend on the terms of the finance contract and the amount of commission. The FCA intends to carry out wide stakeholder engagement, including with affected consumers, motor dealers and finance providers, before developing the final design of the scheme.

The FCA’s proposals come at a significant time for both lenders and consumers. On one hand, the regulator is keen to provide certainty for lenders and consumers by standardising a fair and reasonable approach to compensation through its redress scheme. At the same time, recent court cases have also influenced the car finance mis-selling legal landscape by clarifying, or in some cases, complicating the question of who is eligible for compensation. UK Supreme Court rulings in particular have granted much needed clarity and some new complexity when it comes to the issue of who can be awarded compensation.

The Supreme Court Ruling: What It Really Means for Consumers

In an eagerly awaited judgement on 1 August 2025, the UK Supreme Court provided a ruling [4] which the majority had been hoping would unlock billions of pounds in claims compensation for mis-sold car finance agreements. However, the car finance compensation update presented challenges for the many millions of drivers.

While the ruling criticised opaque commission practices, it placed the burden on individual consumers to prove that brokers or dealers acted against their best interests or failed in their duty of disclosure.

It narrows the circumstances in which compensation will be made, and makes the process of claiming refunds more onerous. Customers may still have a claim, but the ruling will have changed expectations such that compensation will not be as broadly available or as simple as had been hoped.

At the centre of the ruling were appeals from Close Brothers and MotoNovo [5] over the legality of discretionary commission models used before 2021. Under these models, the dealer was able to increase the customer's rate of interest so as to earn a higher commission, without necessarily making this clear.

The Supreme Court accepted that brokers have a duty to act openly and honestly in particular when arranging finance. However, the Court decided that:

• Brokers do not breach this duty merely by earning commission unless they fail to properly disclose how it affects the deal.
• Generalised statements like “a commission may be paid” are often inadequate, but not automatically unlawful.
• Whether a consumer is eligible for redress must be determined on a case by case basis.

In summary, consumers will have to demonstrate a lack of disclosure in their individual agreement, rather than the fact of the commission model itself.

One Case Upheld: But What Does That Mean?

As part of its 1 August 2025 ruling, the UK Supreme Court considered three separate cases but upheld only one: that of Marcus Johnson. His case has now become a focal point for interpreting what the judgement means for millions of other motorists.

In Johnson’s case, the court found that the test of “unfairness” had been met. The South African lender FirstRand (trading as MotoNovo in the UK) had paid a significant, undisclosed commission to the car dealer. Importantly, Johnson’s contract documents did not disclose any commercial relationships between the lender and the dealer.

While the fact that Johnson did not read the documents he received, the Court did find that he was "commercially unsophisticated." The decision left open the question of whether or not an ordinary consumer without a financial background could be expected to discover undisclosed connections and/or complex finance arrangements.

This ruling is significant because it shows that lack of disclosure alone may not be enough. What seems to have tipped the scales in Johnson’s favour was the combination of nondisclosure, a large commission payment, and his relative inexperience.

Legal commentators are now examining whether Johnson’s success sets a precedent. It suggests that others in similar positions, particularly if they weren’t clearly informed, and didn’t have the financial expertise to question the deal, could still have strong grounds to claim.

However, the fact that only one of three cases was upheld confirms that claims will depend heavily on individual circumstances and not all consumers will meet the threshold set by the court.

How the scheme will work 

The FCA wants it to be simple to access and understand.

1. Lenders identify affected customers - The lender will review their records and contact any customers they think may be eligible.
2. If you’ve already complained that you were mis-sold car finance or that commission was not disclosed, the lender must automatically include you in the scheme unless you opt out. You will be contacted within three months of the scheme opening, and given one month to decide if you wish to remain in.
3. If you have not made a complaint, the lender should contact you within six months of the scheme opening. You will then have six months in which to opt in.
4. If your lender no longer has your details you can still participate. You have one year from the start date of the scheme to contact the lender and request a review.
5. The lender will review your case and, if appropriate, calculate any redress, using the FCA’s prescribed rules. You have the right to ask the Financial Ombudsman Service to review whether the scheme’s rules have been properly applied if you do not accept the outcome.

What Should You Do Now?

It’s now more important than ever to act promptly and document your claim thoroughly.

Why act now?

• Your complaint will be logged and dated, ensuring it is part of the review process.
• You will be one of the first claimants whose concerns will be processed when the FCA gives its guidance, or a partial redress scheme is set up.
• Some lenders may still settle cases early, especially where disclosure failures are obvious.

Different Ways to File a Car Finance Mis-Selling Claim

If you feel your car finance agreement has been mis-sold there are various routes you can take to escalate a complaint, dependent on how comfortable you feel, as well as the amount of time and resources you have:

• DIY (Do-It-Yourself) Complaints - Many consumers choose to file complaints on their own by contacting their lender directly. The FCA encourages this approach and offers consumer guidance on its website. You can also find free complaint letter templates from organisations like the Financial Ombudsman Service (FOS), Citizens Advice, MoneySavingExpert, or consumer rights groups.
• Using a Claims Management Company (CMC) - A popular option for those who prefer expert assistance. Reputable CMCs like Reclaim247 handle the process end-to-end, including reviewing your finance agreement, gathering supporting evidence, and drafting the complaint. They operate on a No Win, No Fee basis.
• Hiring a Solicitor - For more complex cases, particularly where large sums or legal technicalities are involved, you may consider hiring a solicitor with experience in consumer credit law. This route can offer high-level support but may involve upfront legal fees unless a conditional fee arrangement is in place.

Each option has pros and cons. While DIY methods are free and straightforward for simple cases, regulated professionals can add value where commission structures were buried deep in complex agreements or where there’s pushback from the lender.

Can You Still Use a Claims Management Company?

Yes. In fact, the new complexity of the claims process makes the support of a regulated Claims Management Company (CMC) more valuable.

A reputable CMC can:

• Scrutinise your finance deal to flag up any warning signs.
• Prepare a robust, evidence-based case which is in line with the SC’s criteria.
• Deal with all the correspondence with lenders on your behalf.
• Help trace your agreements or look for old ones.
• Operate on a No Win, No Fee basis.

⚠️ Watch out for cold callers and unregulated firms. Only use FCA-authorised firms that provide transparent terms and fair pricing.

Timeline of Key Events

• 2007–2021: Use of DCAs widespread in UK car finance
• 28 Jan 2021: FCA bans discretionary commission arrangements
• Oct 2024: Court of Appeal supports consumer challenge
• Apr 2025: Supreme Court hears final appeals
• 1 Aug 2025: Supreme Court ruling limits scope of automatic redress
• 7 Oct 2025: The FCA announced a consultation for guidance on a formal scheme, and for it to be open for 6 weeks.
• 4 December 2025: FCA’s pause on complaint decisions set to end but the regulator will consider all responses and confirm by 4 December 2025 if it will extend this deadline for complaint handling. Note this extension will not apply to car leasing complaints. Leasing agreements are not under the same legislation in respect to unfair relationships and are therefore excluded from the proposed redress scheme.
• 31 July 2026: If the extension goes ahead, lenders will have until 31 July 2026 to send final responses to relevant motor finance complaints
• 2026 (est.): Redress outcomes, if applicable, may begin

Should You Still Start a Claim?

Absolutely. While the route to compensation may now be more complicated, valid claims from this widespread car finance scandal still exist, especially where clear failures in disclosure or unfair practices can be shown. 

Some consumers have also expressed concern about whether there is a car finance claims deadline they need to meet. No deadline has been set for complaints but it is suggested that you submit your complaint as soon as possible.

By submitting now:

• You secure your place in any future process.
• It gives your claim the best chance of early resolution.
• You can still be eligible if the FCA sets up a targeted redress route.

The power of finance industry experts’ insights has brought the matter to the forefront of the news. They played a significant role in encouraging consumers to look into the matter and see if they are entitled to a refund. As a result of their campaigning, many more people are deciding to make claims. 

If you believe your finance deal involved unfair or hidden commissions, it’s not too late. Despite the narrower path ahead, compensation is still possible with the right support and a well-documented claim.

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.

FCA Car Finance Compensation Proposal

Car Finance Scandal Explained

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References:

1. proposed new motor finance compensation scheme - https://www.fca.org.uk/news/statements/fca-consults-motor-finance-compensation-scheme
2. The FCA wants a method which is fair to customers, but which is also practical for lenders to implement when assessing millions of cases - https://www.fca.org.uk/publication/consultation/cp25-27.pdf
3. The FCA estimates that compensation awarded through the proposed redress scheme would average around £700 per agreement - https://www.fca.org.uk/news/press-releases/14m-unfair-motor-loans-compensation-proposed-scheme
4. 1 August 2025, the UK Supreme Court provided a ruling - https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf
5. appeals from Close Brothers and MotoNovo - https://www.reuters.com/world/uk/uk-supreme-court-overturns-ruling-motor-finance-commissions-win-banks-2025-08-01/