The one reason why most people in the UK can afford vehicles today is due to car financing, and it has become one of the most workable ways to get a car, whether it be owning it outright or paying for it through installments. Finance arrangements such as Personal Contract Purchase (PCP), Hire Purchase (HP) and leasing deals have become extremely beneficial in making car ownership within reach, especially for those unable to pay in full. But there’s also a whole layer of complexity that most consumers do not fully understand. 

There have been numerous concerns about fairness and transparency in car finance deals lately, and the number has grown significantly. People have been raising complaints about their car finance agreements, having no idea they were misled before even signing the contract. Other people have also discovered they were charged excessive interest rates, contracts bled with hidden costs, and pressured to sign agreements that weren’t financially fit for them. Most of the deals were mis-sold, which is now a serious issue, making customers eligible for car finance compensation with the help of the FCA. 

The growing discontent brought about by these mis-sold deals has caught the attention not only of those who have purchased car finance agreements, but also regulators. In fact, this is the Financial Conduct Authority’s (FCA) biggest role, stepping in as the UK’s financial watchdog. The committee has been looking at how vehicle finance products are marketed and how these commission systems have caused unjust treatment of consumers. More consumers are finding that they were impacted as the FCA probes these incidents, revealing the extent of the issue. As the FCA digs deeper into these scandals, it shows how widespread the problem is, with more customers discovering they were affected. 

This moment of scrutiny presents both a risk and an opportunity for consumers, because it’s either they end up locked into this unfair deal that they were presented, or they go on with the opportunity to correct this mistake in the first place. 

Understanding Your Consumer Rights

Knowing your rights on a car finance deal is no longer optional, especially with the growing consumer concern regarding car financing. If you purchased or acquired a car through car financing options, then it’s a must to know what your rights are. This will allow you to get an idea of the laws that protect you, what red flags to look out for, and how you can challenge unfair practices or take action if you have already been presented with an unfair contract. 

In this guide, we’ll talk bout everything you need to know about your rights as a consumer, covering the legal basics of mis-selling and what you can do to hold your providers accountable for the mis-selling they caused you. Knowledge is your best defense, and it’s your first step to get you successful on a refund or claim in case you were affected. 

Keep in mind that when you enter car finance agreements, it’s not just about signing a contract and paying to uphold the legalities of it, but also gaining legal rights which are designed to protect you as a consumer in the first place. With these rights, you are guaranteed fairness, transparency and accountability in all your financial transactions. 

But we don’t just give hearsay or advice. Here, we’ll also break down the key laws that protect you to give you a sound mind, and that there are legalities that support this. 

Key Laws Protecting You

1. Consumer Credit Act 1974

The CCA Act 1974 is a foundational law that covers most personal loan and credit agreements, including car financing. This law ensures that lenders and dealers are able to provide you with detailed and clear information before letting you sign anything. Under this act, you are entitled to:

• Receive a hard copy of your finance agreement, which indicates all costs, payment terms and interest rates. 
• A cancellation right or 14-day cooling-off period which allows you to back out of a contract without paying for anything. 
• Right to Repay the loan early, or partially and in full, plus right to a reduction in interest and charges.
• Challenge misleading and unfair terms. 
• Default Notices and Fair Treatment if You Fall Behind: If you miss payments, the lender must send you a formal notice before taking further action, allowing you time to resolve the situation.
• Regulated Agreements and Licensing: Only authorised lenders can offer consumer credit. This ensures that you are dealing with a legitimate and regulated business.

2. Consumer Rights Act 2015

Often associated with Product quality, this law also applies to finance agreements. It allows you to strengthen your right to fairness, especially if the case you’re dealing with is about hidden charges and misleading sales tactics. These key protections include:

• The right to receive services with reasonable care and skill
• Protection from unfair contract terms which often favours lenders
• Return the product if it’s not fit for the purpose or faulty and doesn’t conform to product standards

Your Protections in a Car Finance Agreement

Car finance agreements have terms that protect you as well. In this case, you’re legally entitled to the following:

• Clear and honest information upfront – Here, the dealer must be able to tell you of the total cost of the finance deal, which includes interest, additional charges and all optional extra fees like GAP insurance.
• Transparency on commissions – In cases where a dealer is receiving commissions for arranging your finance deal, you, the consumer should be informed prior to the transaction being closed, as any commission charge can influence their recommendation and the contract they offer you.
• Affordability Checks – Beware in cases where they fail to conduct affordability checks, as it is a requisite in getting a car finance deal. Your lender must know whether you are able to afford the monthly repayments by assessing your current and future affordability which may depend on the concurrent mortgage, or other bills under your financial responsibility. 

When you sign a car finance deal, you’re legally entitled to:

• Clear, honest information upfront: The dealer must tell you the total cost of the finance deal, including interest, any additional charges, and optional extras (like GAP insurance).
• Transparency about commissions: If a dealer is receiving a commission for arranging your finance, this must be disclosed to you before signing the contract, as it could influence their recommendation.
• Affordability checks: The lender must assess whether you can reasonably afford the monthly repayments before approving the finance.
• Fair treatment throughout the agreement: Anyone who enters a car finance agreement should be treated fairly at all times, even at times when you fall behind payments. Lenders should work with you to find a solution rather than pursue aggressive recovery tactics right away. 

Being aware of your rights isn’t only a precaution. It’s also a way to ensure you know the right actions and can confidently act in case things go south, or if simply the deal doesn’t feel right. No one should ever pressure or mislead you into signing an agreement that you do not find financially comfortable with. Always go for expert advice and walk away from deals that you feel don’t sit right with you.

Common Mis-Selling Tactics

While there are legal safeguards in place, mis-selling in car finance still remains a serious issue in the UK. If the finance product is sold, without properly informing the customer of all the information particular to it, it if the product is not financially sound for the person’s need and situation, then this may constitute a mis-selling act. 

Let’s break down some of the most common tactics used—and how they may breach your legal rights.

Hidden Commissions

Undisclosed commissions are one of the most widespread mis-selling practices, and this happens in cases where car dealers or brokers receive commissions for recommending a certain finance product, even if it’s not the most financially suited for them. This also happens if the commission is left undisclosed and you only figure out about it after signing the contract or during your claim. 

Hidden commissions have become a problem, because dealers would often push expensive deals as it benefited them more, while compromising your interests in the process. Under the Consumer Credit Act and FCA ruling in car finance, all commissions, especially those that affect the recommendation of the dealer should be disclosed. Any hidden commission can count as a ground for a mis-selling complaint.

High-Pressure Sales Tactics

Unlike other marketing offers, car finance deals should not be offered with FOMO (Fear of Missing Out) type of deals, as this can add pressure to a buyer or consumer, especially given how important it is that a deal like this be thought about carefully. If you’ve ever been told by your dealer that the deal is only offered on a limited time basis, or if they tell you you can eventually afford it, then this may fall into what is referred to as a high-pressure sales tactic. 

What makes this problematic is that it stops you from fully understanding the agreement and prevents you from comparing it to other options. There are even dealers who will encourage you to take deals you cannot afford. Always remember that you are entitled to time to think whether it’s the best option for you, and you have the freedom to make an informed choice. So if you were pressured into signing, then this may mean it doesn’t meet the legal standard of “informed consent,” which is a necessity in all car finance agreements. 

Lack of Transparency

Car Finance Agreements may be foreign to you especially if it’s your first time and it’s filled with jargon, vague language and terms which may be unclear to you yet. The lack of clarity in an agreement can clothe key details such as total repayment amount, additional charges and balloon payments at the end of a PCP deal. There are also conditions for returning or keeping the car that you may not be aware of, and if this is the case, it may keep you from making a fair decision. 

You should know what you’re signing yourself into, and it’s the dealer's responsibility to ensure you are well-informed about the technicalities of the agreement. 

Under the Consumer Rights Act, you should be presented with contract terms that are clear, fair and understandable. Not doing so can make parts of the agreement unforeseeable, leading to compensation for your benefit. 

What the FCA Does to Protect You in Car Finance Deals

In cases where you feel overwhelmed or uncertain about the car finance agreement offered to you, the only way to relief is to know there are ways to protect yourself in these car finance deals.  The FCA car finance investigation aims to protect drivers by examining whether lenders engaged in unfair practices when arranging car loans. Whether it be an unfamiliar term, a long contract, or these fast-talking salespeople, there’s a guaranteed way for help. This is through the powerful force – the Financial Conduct Authority (FCA). 

FCA is the UK’s financial watchdog and they act as an independent regulator whose mission is to ensure that financial markets remain honest, fair and transparent. Part of their responsibility is to ensure they keep a close eye on how a car finance is sold. Martin Lewis warns drivers to be aware of potential compensation claims related to car finance agreements under investigation by the FCA. Here, we’ll take a closer look at FCA’s roles and what to do if you think that you were sold an unfair finance deal. 

1. Setting the Rules

The FCA is a regulatory body whose role is mainly focused on setting the rules of the road for financial companies. Any firm responsible for offering car finance, whether it be a major lender, a car dealership or a car finance broker, must be authorised and regulated by the FCA. 

This isn’t just a rubber stamp. To stay in the FCA’s good books, these companies must do and maintain doing the following:

• Fair Treatment and Integrity by Car Finance Companies and Lenders:
  All car finance providers are legally required to treat customers with fairness and integrity throughout the entire finance process. This means that lenders should be upfront about all terms and conditions, avoid any hidden charges, and ensure that their marketing and sales practices are honest. Customers should never feel pressured into signing agreements that they don't fully understand or that aren't in their best financial interest.
• Clear Explanation of Products by Brokers and Agents:
  Brokers and agents are responsible for clearly explaining all the details of the car finance products they offer. This includes breaking down the interest rates, the total amount repayable, any additional fees (such as administration charges or early repayment fees), and the conditions of the deal. Transparency at this stage helps prevent mis-selling, where customers might end up with a product that isn’t suited to their needs, or that contains hidden costs. Clear communication ensures that customers make informed decisions, minimising the risk of complaints down the line.
• Proper Affordability Checks by the Firm or Broker:
  Firms should be able to conduct affordability checks as it is a crucial part of any car finance agreement. Part of this affordability check is to assess the customer’s financial situation and determine if they can realistically afford the repayments. Here, they should consider all aspects such as the customer’s current financial circumstance, their income, existing debts and other regular expenses. By means of responsible lending, it can ensure that the customers are not saddled with unaffordable debt, which can lead to stress and potential default.
• Accessible and Straightforward Complaints Process:
  Car finance firms and brokers are also required to provide a clear and easily accessible complaints process. If a customer feels that they’ve been mis-sold a product, charged unfair fees, or have had their rights violated in any way, they should be able to easily raise their concerns. A straightforward process includes providing information on how to make a complaint, clear timelines for responses, and details on escalating the matter to the Financial Ombudsman Service (FOS) if needed. This ensures that consumers have a fair opportunity to seek redress and resolve disputes.  to taking serious action should lenders and dealers break them. The FCA ensures that its rules are followed by doing the following:
• Thorough Investigation of Unfair Practices and Systematic Problems:
  The FCA conducts in-depth investigations into the practices of car dealers, lenders, and finance brokers. They don't just look at isolated incidents but search for patterns of misconduct across the industry, such as widespread mis-selling, lack of proper disclosure, or incentivised sales tactics that harm consumers.
• Setting Fines for Companies That Mislead and Exploit Customers:
  When companies are found guilty of misleading customers, charging unfair fees, or hiding important information, the FCA has the power to impose significant financial penalties. These fines serve both as punishment for the offending companies and as a warning to others in the industry.
• Banning Certain Harmful Practices:
  The FCA has the authority to identify and ban specific practices that put consumers at risk. A key example is the banning of Discretionary Commission Arrangements (DCAs), where dealers could increase customers' interest rates to boost their own commissions, often without the customer even knowing.
• Shutting Down Firms That Repeatedly Fail to Comply:
  Businesses that repeatedly violate regulations and show disregard for fair treatment of consumers are given fair warning by the FCA, and if not taken seriously is given heavy penalties and consequences. Those who do not comply with the FCA’s guidelines are subject to revocation of licenses and authorisation to operate.  Shutting down non-compliant firms helps clean up the industry and protect future customers from exploitation.

In fact, in 2021, the group implemented a ban on the widespread practice of discretionary commission models, which is a system that allowed dealers to inflate interest rates, so they can be guaranteed a higher commission, without letting borrowers know it would impact the amount they pay. This practice has left hundreds of customers unknowingly paying hundreds and thousands of pounds, which is way more than they should have. This stop was implemented after the FCA found out how this system created a conflict of interest amongst dealers, whose main job should be to give borrowers the best deal. 

2. The FCA’s Ongoing Motor Finance Review

Due to the surge and spark in complaints and potential evidence, the FCA is conducting a major review of the motor finance market to ensure that they are able to treat this scandal at its roots. The latest FCA car finance update reveals ongoing investigations into unfair lending practices and highlights potential compensation opportunities for affected drivers. This isn’t just about bad actors in the past—it’s about making sure the industry works better for consumers today.

This thorough review will check the following:

• Were consumers informed properly of these agreements?
• How were these mis-selling complaints handled?
• What kind of redress and compensation are owed to those who were affected?

If you believe there was a problem with your car finance or that you were mis-sold, then conducting a review is essential. This would result in widespread consumer redress, just like what happened in the PPI scandal in the past.

What the FCA review means to consumers

The FCA exists to protect your financial wellbeing, and thanks to its regulations, finance companies are required to play fair or else they may face serious consequences. Through the FCA, consumers are given clearer and more transparent car finance options. These strong systems in place have helped consumers file complaints and seek compensation after learning they were mis-sold. 

What makes the FCA even more helpful is that they are free and independent which is why you can ensure they are fair and free of bias. If you see or discover that the company where you got your car finance firm is not playing by the rules, then you can file a complaint directly with the provider. If it doesn’t resolve your claim, then the next step you can take is to escalate it to the Financial Ombudsman Service or the FOS. This group extends to settling disputes between consumers and financial firms, following the FCA’s rules. 

Key FCA Actions That Protect Car Finance Customers

The FCA's role isn’t simply theoretical. They make a real impact on how car finance is sold and regulated in the UK. Two of the major moves that stand out as wins for consumers are banning the DCAs and holding an ongoing review of these motor finance practices.

Ban on Discretionary Commission Arrangements (DCA)

For years, many car finance agreements included a little-known but hugely problematic feature: discretionary commissions. Under this popularly secretive model, car dealers could set the interest rate on your finance deal, and earn a bigger commission the higher they set it.

This created an obvious conflict of interest. Dealers were incentivised to offer worse deals to customers just to increase their own earnings. Most buyers had no idea this was happening behind the scenes.

In January 2021, the FCA banned these commission structures entirely which resulted to:

• More transparent deals that ensure consumers are well aware of the contracts they are getting
• Lower average interest rates which means consumers can have options on which to choose
• Greater savings for consumers as they won’t have to pay for these hidden commissions or extra costs.

These only show that the FCA is well-equipped, and set to act and moderate over these unfair and predatory practices. 

Ongoing Review of the Motor Finance Sector

Building on the DCA ban, the FCA has undertaken a thorough investigation into the auto finance market, focusing on both current practices and suspected historical mis-selling.

Key points under investigation include:

• Whether Customers Were Given Clear and Fair Information at the Time of Sale:

One of the FCA’s main concerns is whether customers fully understood the terms and costs of their car finance agreements when they signed. This includes whether interest rates, commissions, and any potential conflicts of interest were properly disclosed. If vital information was hidden, unclear, or misleading, consumers may have entered into agreements they would have otherwise rejected or negotiated differently.

• How Complaints About Car Finance Are Being Handled by Lenders and Dealers:

The FCA is also examining whether lenders and dealerships are dealing with customer complaints fairly, promptly, and transparently. Customers who raise concerns about their car finance agreements must be treated with respect and given a clear explanation of the outcome. Poor complaint handling — such as ignoring complaints, giving incomplete responses, or dragging out the process — is a serious breach of consumer rights.

• Whether Some Customers May Be Due Compensation or Redress:

Based on the findings of the investigation, the FCA is considering whether customers who were misled, overcharged, or otherwise treated unfairly should receive financial compensation or other forms of redress. This could involve refunds of overpaid interest, cancellation of unfair terms, or other corrective measures aimed at restoring customers to the position they should have been in had they been treated properly from the start.

These reviews have been pivotal in reshaping the future of car finance and the FCA’s decisions on how it will be regulated. Consumers who took out their car finance agreements before 2021 could potentially be affected by these mis-selling tactics. If there was an involvement of hidden commissions and unclear terms, then these may be sufficient grounds for filing a complaint and potentially receiving compensation. 

How to Hold Providers Accountable for Car Finance Mis-Selling

If you suspect that your car finance deal wasn’t what it seemed—whether you were misled, overcharged, or never told about a hidden commission—you have the right to take action.

Holding your finance provider or dealership accountable may sound intimidating, but the process is more straightforward than you might think. Here’s a step-by-step guide to raising a complaint and escalating it if needed.

Step 1: Gather Your Evidence

Before you initiate a complaint, ensure that you have gathered everything related to your car finance deal. This is important because without evidence, you won’t have a strong claim, which is exactly what you need.  

Before making a complaint, gather the following:

• A copy of the finance agreement – If you think you’ve lost yours, then you can request a copy from the car financing company.
• Emails and paperwork that you have with the dealer and broker, especially marketing materials that may prove the mis-selling
• Payment history and statements that will show you were paying.
• Notes on anything said at the point of sale which can indicate signs of mis-selling.
• Any proof of commission, especially if it was undisclosed

Even if you don’t have all of this, don’t worry—you can still raise a complaint, and the provider is required to supply key documentation on request.

Step 2: Complain to the Finance Provider

After you have gathered all evidence of mis-selling, the next step is to submit a formal complaint to the finance company or the dealer who arranged the agreement. Here, you should clearly explain the following:

• What you believe went wrong with the agreement – This includes whether you were told about the commission or not, or whether you were pressured into the deal. You can also indicate here if the terms you had were unclear.
• Why you think the contract you were given was unfair or misleading
• Your preferred outcome or what they could do to put things right – Here you can indicate a refund on the interest, or if you want to cancel the agreement, or request a compensation. 

FCA-regulated firms are legally required to create a complaints procedure that follows the standard of 8-weeks for investigation and response. This ensures your complaint will be acknowledged. 

Step 3: Escalate to the Financial Ombudsman Service (FOS)

Another way to reclaim what you were owed, in case the lender rejects your claim is to escalate to the Financial Ombudsman Service (FOS). They are your next hope in filing for compensation. You can also escalate to them in case you’re not happy with the resolution you were provided or the lender doesn’t respond to you within 8 weeks. 

Also, it's important to remember that escalating your case to the FOS comes free. They act as a regulatory body that mainly settles disputes that arise between financial firms and consumers. They review the case and take into account FCA rules in the process too. The FOS also recognises consumer law, and weighs or gauges what’s reasonable under these circumstances. Here’s what they can do:

• Order the provider to pay you the compensation you were owed from the mis-selling
• Require your provider to refund the unfair and excessive interest charged including the fees that weren’t supposed to be charged in the first place
• Instruct the firm to either rewrite or cancel the agreement you have
  

Your Right to Redress

If the FCA’s review suddenly finds these systemic mis-selling in the industry, then you can expect broader compensation schemes, like what happened with the PPI. However there’s no need to wait here. If you think you’ve been mis-sold, then act quickly and submit your claim. 

Consumers have up to six (6) years from the date of the agreement or three (3) years from when they became aware of the mis-selling issue to file and pursue their complaints. But if you act now, then you may even have a stronger case. 

Dig Deeper into Your Car Finance Rights

If you’re exploring your rights as a car finance customer, it's crucial to know the relevant information that will help you go even further. If you’re not sure what you’ve signed or what you’re about to sign, then learning about your consumer rights is a must. It will allow you to know by yourself whether the finance deal offered to you was fair, and also the red flags to watch out for. 

Also, you should know that if you are a victim who went to the FCA on the grounds of mis-sold car finance, you’re not entirely powerless. You can still hold your car finance provider accountable for the mis-selling that occurred. Moreover, the FCA’s role can be beneficial in helping you get back what you were owed. Their job entails protecting consumers from these unfair finance deals they are presented with. 

Whether you're concerned about past treatment or simply want to make smarter choices going forward, knowledge is your best protection.

Conclusion

Navigating the world of car finance can feel overwhelming—but the good news is, you’re not alone and you’re not powerless. With this information at your perusal, you can claim what was not supposed to be lost in the first place. 

As a consumer, you’re protected by strong UK laws, regulations, and oversight bodies like the FCA and the Financial Ombudsman Service. Whether it’s a hidden commission, an unclear agreement, or a deal you were pressured into, you have the right to challenge unfair treatment and seek redress. Always remember that you don’t need to be a legal expert to spot mis-selling. You don’t even need to accept unfair deals or poor treatment just because you are entering car financing and can’t pay outright. Moreover, you need to stand up and refuse to stay silent as it is exactly the reason why these tactics continue – people are not speaking up. 

Understanding your rights is the first step toward making confident, informed decisions—and ensuring that finance providers are held to account.

If you think you’ve been misled or mis-sold a car finance agreement, now is the time to act. At Reclaim247, you can guarantee expert help and advice to navigate your case.

Disclaimer:

Reclaim247 is not affiliated with, endorsed by, or officially connected to Martin Lewis or MoneySavingExpert. Any references in this article are for informational purposes only and do not constitute an endorsement. Consumers who wish to handle their car finance claims independently can access a free claim template directly from MoneySavingExpert.