LONDON — The UK’s car finance scandal is fast becoming one of the most significant consumer issues of the decade. Thousands of drivers are now questioning whether they were treated fairly when they signed their car finance agreements. Thousand's have already made car finance claims. With billions of pounds up for compensation there could be a huge shift in the way car finance operates from now on.

At the heart of the issue are concerns about mis-sold car finance. According to the Financial Conduct Authority (FCA), some customers may have paid more than they should have, particularly on personal contract purchase, or PCP deals. These have become one of the most popular ways to finance a car in the UK. The FCA believes that in many cases, customers were not properly told how their interest rates were set, or that brokers could earn more commission by increasing those rates.

A national compensation scheme is coming

To address these concerns, the FCA is putting together a national redress scheme [1]. The final details are expected later in 2026, but early figures suggest that payouts could total up to £8.2 billion [2]. If that happens, this would become one of the biggest financial compensation programmes since the PPI scandal.

The FCA has said it wants the process to be straightforward and fair. For those who believe their agreement was car finance mis-sold, the goal is to provide a clear route to claim compensation without unnecessary confusion or delay.

Tax row adds fuel to the fire

While the redress scheme is taking shape, a separate issue has sparked political debate. A tax loophole could allow banks involved in the car finance scandal to reduce their corporation tax bills when they pay out compensation. Critics warn that this could end up costing the Treasury around £2 billion [3].

Treasury minister Lucy Rigby has faced calls to close the loophole. Some MPs argue that allowing banks to benefit in this way sends the wrong message, especially to customers still waiting for answers. The government has said its focus is on finding a balanced and practical solution that works for both financial firms and the public.

What went wrong: car finance mis-selling explained

The FCA has identified several practices that may have led to car finance mis-selling. These include:

Discretionary Commission Arrangements, where brokers raised a customer’s interest rate in order to earn more commission, without making this clear

Unfairly High Commission, where brokers received fees much higher than what would normally be considered reasonable

Contractually Tied Arrangements, where customers believed they were seeing different finance options but were only ever shown one lender

These practices have triggered a surge in car finance claims, especially among drivers who took out PCP deals and now feel they were not given the full picture.

How to make a claim

The FCA is making efforts to ensure the claims process is clear and fair. It has already taken action against companies that used misleading advertising and continues to remind consumers that they are free to raise complaints directly with their lender at no cost.

At the same time, many people still prefer to use a regulated claims management company for support. These services can be helpful for reviewing older agreements, checking for signs of car finance mis-selling, and managing the paperwork especially if the deal was signed years ago or records are missing.

What happens next

As the FCA’s redress plan takes shape, it will determine how quickly claims are handled and how compensation is calculated. For drivers across the UK, the key questions are whether they were properly informed when they signed their agreement and whether they paid more than they should have.

With the number of PCP claims rising and more people now reviewing their past agreements, mis-sold car finance is not a problem that is going away. This is expected to remain a major financial issue well into 2026 and beyond. The outcome could make a real difference for anyone who has been affected.

_________

References:

1. the FCA is putting together a national redress scheme - https://www.fca.org.uk/publications/consultation-papers/cp25-27-motor-finance-consumer-redress-scheme
2. early figures suggest that payouts could total up to £8.2 billion -https://www.thetimes.com/business/companies-markets/article/motor-finance-last-hurrah-claims-industry-050pp6qdl
3. Critics warn that this could end up costing the Treasury around £2 billion - https://www.theguardian.com/business/2026/jan/25/city-minister-accused-ignoring-car-finance-tax-loophole