Over 23 million drivers in the UK could be owed car loan compensation in the wake of a growing scandal in the motor finance sector. The industry has suffered from plummeting public confidence in car finance firms, while also being placed under growing regulatory scrutiny from both the Financial Conduct Authority (FCA) and the Financial Ombudsman Service (FOS).

Public Awareness and Reaction to Mis-Selling Claims

Many UK consumers believe they could have been affected by undisclosed or unfair commissions on their car finance deals. This comes after a rise in awareness of the "car finance scandal", which relates to undisclosed commission structures between lenders and car dealerships.

In many cases, brokers and car dealers were incentivised to charge consumers higher interest rates in order to receive larger commissions. These discretionary commission arrangements, largely in use before they were banned by the FCA in 2021, have raised serious questions about the transparency and fairness of past motor finance deals.

Regulatory Crackdown and Industry Backlash

The Financial Conduct Authority has taken centre stage in investigating the issue. In January 2024, the FCA launched a formal review into historic car finance agreements, following a steep increase in car finance complaints being filed with the Financial Ombudsman Service.

“The use of discretionary commission arrangements created a conflict of interest and led to unfair costs for consumers,” said Sheldon Mills, Executive Director of Consumers and Competition at the FCA. “We are acting to ensure that people who were mis-sold finance receive appropriate redress.”

The Ombudsman has also been overwhelmed with car finance commission complaints, leading to speculation that the potential compensation payout across the industry could reach tens of billions of pounds. This would make it one of the largest financial redress events since the Payment Protection Insurance (PPI) scandal.

Scale of the Scandal and Public Distrust

The FCA’s estimates suggest that around 40% of motor finance agreements prior to 2021 may have involved some form of discretionary commission. As the scope of the car finance scandal becomes clearer, a growing number of drivers are actively exploring how to claim mis-sold car finance. Lawyers and claims management companies have seen a flood of enquiries, with some law firms saying they are receiving thousands of "potential claims" a day.

Impact on the Car Finance Industry

The fallout is already starting to reverberate through the auto and finance industries. Major banks and finance houses such as Barclays Partner Finance and Black Horse (a division of Lloyds Banking Group) have been named in complaints. Although the FCA has not yet mandated direct refunds, industry insiders believe that regulatory-enforced car finance settlements are highly probable. Senior executives in the industry are understood to be pressing the FCA for a finite claims period, over fears of ‘decades of litigation and reputational harm’.

Legal Grounds and Consumer Protections

Central to the problem were discretionary commission arrangements which let brokers set or influence the rate of interest charged to the consumer. The higher the interest rate, the higher the commission the broker received — a clear conflict of interest that was rarely disclosed to customers.

In 2021, the FCA banned these practices, calling them “not fit for purpose.” However, many agreements signed before the ban remain under review. A key concern is that consumers were not made aware of the commission structure, nor were they told that cheaper financing options might have been available.

Under current regulations, consumers who believe they were misled or charged unfairly have the right to lodge complaints with the financial institution and, if unsatisfied, escalate their case to the FOS. If upheld, the Ombudsman can order compensation, cancellation of the agreement, or a partial refund of interest charges.

What Consumers Should Do Next

The FCA has advised motorists who suspect they may have been affected to review their car finance documentation and submit complaints where appropriate. While the regulatory review continues, experts advise consumers to act now, particularly if their agreement involved a third-party broker or unusually high interest rates.

Many financial advisers are also urging caution when using claims management companies, warning of potential fees and aggressive marketing practices. The message to consumers is to either ask lenders directly, or seek help from free advice services. 

Advice on how to claim mis-sold car finance is now fairly common online. It generally consists of asking for full information about the finance, looking over the interest rate, and lodging a complaint if mis-selling is discovered.

A Growing Movement for Justice

Public opinion is turning very quickly. Facebook and review sites are full of personal experiences with unsolicited charges and high-pressure sales tactics. You can expect to see high-profile lawsuits soon as well; there are a number of group actions that are already in their infancy.

The situation has drawn parallels to the PPI scandal, not just in terms of scale but also in the patterns of misconduct — namely, the use of opaque financial products sold under the guise of convenience.

If early projections are accurate, car finance compensation claims could amount to one of the largest consumer redress exercises in UK history. For the time being, regulators, lenders and consumers all wait for the next inevitable car finance reckoning to come.

Conclusion

Millions of mis-sold car loan claims are waiting in the wings and with over 23 million Brits thinking they may be eligible for compensation, the industry is set to experience another all too familiar double-whammy of financial and ethical meltdown.

The FCA and FOS investigations continue. One thing we know already is that transparency, accountability and appropriate redress is expected by the public, for years of undisclosed commissions and artificially high interest rates.

For consumers who think they may be affected, it’s time for reflection – yes. But also, to take action. The car loan compensation window is more than a chance for recompense – it’s an opportunity to finally rebalance the scales between lenders and the public they exist to serve.