Car finance mis-selling update: regulator prepares for compensation scheme – and warns against using claims firms

On Thursday 5 June, regulator the Financial Conduct Authority (FCA) published new information on how it will go about designing a potential car finance mis-selling redress scheme – but it's the outcome of the Supreme Court case that will likely decide what kinds of cases are covered.

That's because there are two main types of car finance mis-selling being looked at by the FCA and the courts right now:

1. Discretionary Commission Arrangements (DCAs) – not a direct part of the Supreme Court case. This applies to about 40% of car finance deals, and is where brokers and dealers could increase the amount of interest they charged customers (without telling them) on Personal Contract Purchase (PCP) and Hire Purchase agreements up to 2021 in order to increase their commission. This hidden commission was obviously problematic.
   
   This is the type of car finance mis-selling that MoneySavingExpert.com founder Martin Lewis has been talking about and suggesting people complain about. If you're one of the over 2.5 million who have put complaints in through our free tool, then it is very likely it was a DCA complaint.
   
   The FCA has already confirmed that it will consult on a car finance mis-selling redress scheme, and it has now set out the factors it will consider when designing it.

2. Commission Disclosure complaints – the subject of the Supreme Court decision expected next month. These are based on the Court of Appeal ruling that if car finance agreements didn't tell consumers all details of commission, including the amount (they rarely did), they were unlawful. It applies to up to 99% of car finance cases (including DCA cases).
   
   That Court of Appeal ruling took everyone, including the regulator, by surprise – and was not something it was looking at. Even Martin has said he has concerns that the decision risks doing more harm than good.

So, in summary, while Commission Disclosure complaints are all about the courts, DCAs were about a breach of the FCA regulations. Yet even on that, the regulator can't act until it has clarity from the court.

Regulator gears up for a potential redress scheme

The FCA said it was considering whether the scheme should be "opt-in" – meaning you'd have to act before a certain deadline to be included – or whether firms will have to compensate those affected automatically under an "opt-out" scheme.

The regulator added that it would be guided by a number of principles when putting together any industry-wide scheme, including:

1. Comprehensiveness – covering as wide a range of complaints as possible, so consumers don't have
   to go elsewhere, such as court.

2. Fairness – making sure that any compensation is calculated and set at a "fair" level for both consumers and firms.

3. Certainty – to give consumers and firms finality.

4. Simplicity and cost effectiveness – making it easy for consumers to take part and ensuring the costs of
   delivering the scheme are "proportionate" for firms.

5. Timeliness – resolving the majority of claims within a "reasonable" timeframe.

6. Transparency – clear explanations of decisions for consumers, as well as publishing data to highlight the progress of the scheme.

7. Market integrity – making sure car finance remains available and competitive.

The regulator noted that "there may be tensions between some of these principles". For example, if any redress scheme was really comprehensive and covered lots of consumers, it could mean a longer wait for payouts. It's therefore asking for feedback to help it "get this balance right" – if you have any, you can email motorfinance@fca.org.uk.

You DON'T need to use a claims firm

The regulator has stressed that any scheme it introduces will be "easy for consumers to understand and participate in" on their own.

It warned that signing up with a claims firm now could mean you end up paying for a service you don't need, or having to pay up to 30% in fees out of any compensation you're due. Instead, see our FREE car finance reclaim tool and guide.

What happens next

The Supreme Court's judgment is expected in July. Within six weeks of this decision, the FCA is expected to confirm whether it plans to introduce a redress scheme. The FCA said it would try to "act as quickly as possible" to bring certainty to firms and consumers.

Car finance mis-selling – a brief timeline

• In January 2024, the FCA launched a huge investigation into car finance mis-selling, specifically looking at hidden DCAs, which allowed brokers and dealers to choose from a range of interest rates, and to earn more commission if they charged a higher one. Since then, over 2.5 million complaints have been made via our free DCA tool.

• In October 2024, a landmark Court of Appeal verdict then shook things up. It ruled that car sales firms couldn't lawfully receive commission from finance firms unless they had the customer's "fully informed consent", making payouts more likely. This meant anyone who'd had commission of any type on a car finance agreement could potentially be owed money back.
  
  But the car finance firms involved – Close Brothers and Motonovo – appealed this judgment to the Supreme Court.

• In December 2024, the FCA extended a pause on firms dealing with car finance complaints to all commission complaints – not just DCAs as was previously the case.
  
  This means car finance providers do not have to provide final responses to motor finance non-DCA commission complaints received on or after 26 October 2024 until after 4 December 2025.

• In March 2025, the FCA confirmed that it will consult on a redress scheme, and will announce the next steps for complaints six weeks after the Supreme Court makes its decision.

• In April 2025, the Supreme Court heard the appeal against the October 2024 ruling.