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Victims of Mis-Sold Car Finance Could Receive Less Than £950 Per Deal
Victims of Mis-Sold Car Finance Could Receive Less Than £950 Per Deal
In a significant development for UK motorists, the Financial Conduct Authority (FCA) has announced plans to consult on a redress scheme for consumers affected by mis-sold car finance deals, with potential payouts expected to be less than £950 per agreement.
This follows a Supreme Court ruling on August 1, 2025, which clarified the legality of commission payments in car finance arrangements, significantly narrowing the scope of compensation claims.
The issue, described by some as the “biggest consumer finance scandal since PPI” (Payment Protection Insurance), centers on hidden commissions, particularly discretionary commission arrangements (DCAs), that led to millions of drivers overpaying on car loans before 2021.
This article explores the background of the scandal, the Supreme Court’s decision, the proposed compensation scheme, its implications, and what consumers can expect moving forward.
Background of the Car Finance Mis-Selling Scandal
The car finance mis-selling scandal revolves around commission structures in motor finance agreements, particularly those involving personal contract purchase (PCP) and hire purchase (HP) deals.
Approximately 90% of new cars and many used vehicles in the UK are purchased through finance, with around two million such deals annually.
Before January 2021, many of these agreements included discretionary commission arrangements, where car dealers or brokers could increase the interest rate charged to customers to boost their commission from lenders.
These DCAs, banned by the FCA in 2021, incentivized dealers to charge higher-than-necessary interest rates, resulting in consumers overpaying without being informed of the commission structure.
The issue gained traction following a 2021 FCA ban on DCAs, prompted by evidence that these arrangements led to unfair financial burdens on consumers.
Since then, the FCA has been investigating historical motor finance deals, with over 80,000 complaints logged and an estimated 40% of pre-2021 car finance agreements involving DCAs.
The scandal escalated in October 2024 when a Court of Appeal ruling suggested that hidden commissions, even those not involving DCAs, could be unlawful if customers were not fully informed, raising hopes of widespread compensation.
However, the Supreme Court’s recent ruling has tempered these expectations, significantly limiting the number of eligible claimants.
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The Supreme Court Ruling
On August 1, 2025, the Supreme Court delivered a pivotal judgment in a case involving three test claims brought by consumers against lenders Close Brothers and FirstRand.
The court overturned a prior Court of Appeal ruling that had deemed hidden commission payments to car dealers unlawful in most cases. Instead, the Supreme Court ruled that commission payments were generally legal, except in cases where the failure to disclose commissions rendered the relationship between the lender and consumer “unfair.”
The court upheld one claim, that of Marcus Johnson, who purchased a Suzuki Swift in 2017 and was unaware that the dealer received a 55% commission on the total credit cost, including interest and fees.
The court deemed this commission excessively high, indicating an unfair relationship, and awarded Johnson the commission amount plus interest.
However, the other two test cases were rejected, significantly reducing the scope for industry-wide claims.
This ruling means that only consumers who faced particularly high or undisclosed commissions are likely to be eligible for compensation, dashing hopes of payouts for millions who had expected redress based on the earlier Court of Appeal decision.
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The FCA’s Proposed Redress Scheme
Following the Supreme Court ruling, the FCA announced on August 4, 2025, that it would consult on a redress scheme to compensate eligible consumers, with the consultation set to begin in October 2025 and payouts expected to start in 2026.
The scheme is estimated to cost the industry between £9 billion and £18 billion, covering both compensation and administrative costs, with a midpoint estimate of £13.5 billion deemed “more plausible.”
The FCA has indicated that most claimants are likely to receive less than £950 per deal, with the exact amount depending on the “degree of harm suffered” and the need to ensure continued access to affordable car loans.
This figure includes interest, typically calculated at around 3% per year.
The scheme will primarily focus on DCAs that were not properly disclosed and cases involving excessively high commissions, such as Johnson’s.
The FCA has emphasized that lenders will proactively contact eligible customers, meaning consumers may not need to file complaints to receive compensation.
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The FCA’s approach aims to balance consumer redress with the stability of the car finance market.
Concerns have been raised by the industry, including the Finance & Leasing Association, that a large compensation bill could lead to higher loan costs or reduced availability of affordable finance, potentially impacting the broader economy.
The Treasury has also expressed worries about the scheme’s effect on market competitiveness and investment in the UK.
Implications for Consumers
The Supreme Court ruling and the FCA’s proposed scheme have significant implications for UK motorists.
While millions were initially hopeful for compensation, the court’s decision means that only a subset of consumers—those with pre-2021 finance deals involving undisclosed DCAs or excessively high commissions—will likely qualify.
The estimated £950 per deal is notably lower than earlier projections, which had suggested average payouts of around £1,100 per agreement, with some claims reaching up to £10,000 depending on loan size, duration, and interest rate inflation.
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Consumers who have already lodged complaints, with over three million reported by Martin Lewis of MoneySavingExpert.com, do not need to take further action, as their cases are already in the system.
The FCA has strongly advised against using claims management companies (CMCs), which can charge up to 36% of payouts as fees, reducing the amount consumers receive.
Instead, the FCA encourages direct complaints to lenders or the Financial Ombudsman Service (FOS), which is free and handles complaints impartially.
For example, in a case resolved by the FOS, a consumer charged 5.5% interest instead of an available 2.49% rate was awarded the difference in payments plus 8% interest on overpayments.
Such cases illustrate the potential for redress but also highlight the variability in compensation amounts based on individual circumstances, such as loan size and the extent of interest rate inflation.
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Challenges and Criticisms
The redress scheme faces several challenges.
The Finance & Leasing Association has questioned the feasibility of a fair scheme, noting that firms may not have retained records dating back to 2007, complicating the verification of claims.
Additionally, some lenders may resist the FCA’s plans, potentially leading to legal battles that could delay payouts.
Consumer advocates like Martin Lewis have expressed cautious optimism, noting that while payouts are likely for DCA-related claims, the process could be contentious.
What Consumers Should Do
Consumers who believe they were mis-sold car finance before January 2021 should check their eligibility by contacting their lender or using free tools provided by organizations like MoneySavingExpert.com.
Key indicators of mis-selling include lack of transparency about commissions, high interest rates despite good credit, or pressure to accept finance deals.
The FCA has extended the deadline for lenders to respond to complaints until after December 2025, giving consumers ample time to act.
Those who have already complained should await further updates, while others can file complaints directly with their lender or the FOS without incurring costs.
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Conclusion
The mis-sold car finance scandal represents a significant consumer issue, with millions potentially eligible for compensation, albeit at modest amounts averaging less than £950 per deal.
The Supreme Court’s ruling has clarified that only specific cases involving unfair commission practices qualify, prompting the FCA to design a redress scheme to deliver fair and efficient compensation.
While the scheme offers hope for affected motorists, its limited scope, potential industry resistance, and economic implications highlight the complexity of addressing historical mis-selling.
Consumers are encouraged to act promptly, avoid costly claims firms, and stay informed as the FCA’s consultation progresses toward payouts in 2026.
Victims of Mis-Sold Car Finance Could Receive Less Than £950 Per Deal
In a pivotal development for millions of UK motorists, the Financial Conduct Authority (FCA) has outlined plans for a compensation scheme following a landmark Supreme Court ruling on August 1, 2025, which significantly limited the scope of claims related to mis-sold car finance.
The regulator estimates that most eligible consumers will receive less than £950 per finance agreement, a figure that has tempered expectations after initial hopes of payouts akin to the Payment Protection Insurance (PPI) scandal.
This article delves into the origins of the scandal, the Supreme Court’s decision, the proposed redress scheme, potential payouts, implications for consumers and the industry, and guidance on next steps, providing a comprehensive overview of what has been dubbed one of the largest consumer finance issues since PPI.
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The Roots of the Car Finance Mis-Selling Scandal
The controversy centers on motor finance agreements, particularly Personal Contract Purchase (PCP) and Hire Purchase (HP) deals, which account for around 90% of new car purchases and a growing share of used vehicle sales in the UK. 
Annually, approximately two million such agreements are signed, with consumers typically paying an initial deposit followed by monthly installments that include interest. 
Prior to January 28, 2021, many of these deals incorporated Discretionary Commission Arrangements (DCAs), where car dealers or brokers could inflate the interest rate charged to customers to increase their commission from lenders. 
This practice, banned by the FCA in 2021, created an incentive for dealers to impose higher interest rates without disclosing the commission structure to buyers, leading to overpayments estimated at an average of £1,100 per £10,000 four-year deal. 
The lack of transparency meant consumers were often unaware they were paying more than necessary, echoing the opacity that fueled the PPI mis-selling crisis, which cost banks over £50 billion.The FCA’s investigation, launched in January 2024, has uncovered that around 40% of pre-2021 car finance agreements involved DCAs, prompting over 80,000 complaints to the Financial Ombudsman Service (FOS) and potentially affecting millions of drivers. 
High-profile consumer advocate Martin Lewis of MoneySavingExpert.com has highlighted the issue, estimating that up to 23 million people might believe they are eligible for compensation. 
However, the path to redress has been complicated by legal battles, with lenders arguing that commissions were standard practice and not inherently unlawful.
The Supreme Court Ruling: A Narrowing of Claims
The turning point came on August 1, 2025, when the Supreme Court ruled on three test cases brought against lenders Close Brothers and FirstRand. 
Overturning a October 2024 Court of Appeal decision that had deemed most hidden commissions unlawful, the court sided with the lenders in two cases, ruling that commission payments were generally permissible unless they created an “unfair relationship” under the Consumer Credit Act. 
In the upheld case of Marcus Johnson, who financed a Suzuki Swift in 2017, the court found the 55% commission paid to the dealer—equivalent to over half the total credit cost including interest and fees—excessive and undisclosed, awarding him the commission amount plus interest. This decision slashed the anticipated industry bill from potential highs of £44 billion to a more contained £9 billion to £18 billion, boosting shares in lenders like Lloyds and Close Brothers. The ruling clarified that only deals with improperly disclosed DCAs or extraordinarily high commissions qualify for redress, excluding millions who had hoped for broader compensation. 
FCA chief executive Nikhil Rathi emphasized that while some firms broke rules, the scheme must balance consumer fairness with market stability to avoid disrupting access to affordable vehicle finance. The government’s earlier attempt to intervene in the case, citing concerns over economic impacts, was rebuffed by the court in February 2025. 
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The FCA’s Proposed Redress Scheme
Responding swiftly to the ruling, the FCA announced on August 3, 2025, its intention to consult on a redress scheme, with consultations beginning in early October 2025 and payouts slated for 2026.
The scheme will cover DCAs not properly disclosed and cases akin to Johnson’s with excessive commissions, potentially benefiting millions despite the narrowed scope.
Compensation amounts will vary based on the “degree of harm,” including overpaid interest (typically 3-8% annually) and factors like loan size, duration, and interest inflation.
The FCA projects most payouts at under £950 per deal, a downgrade from earlier estimates of £1,100, reflecting the ruling’s limitations.
For instance, a consumer overcharged from 2.49% to 5.5% interest might receive the difference plus compensatory interest, but totals remain modest.
Lenders will proactively contact eligible customers, eliminating the need for individual applications in many cases.
However, the Finance & Leasing Association has labeled the plan “impractical,” citing challenges in retrieving pre-2007 records and potential legal disputes.
The total cost, including administration, is estimated at £13.5 billion midpoint, borne entirely by the industry.
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Implications for Consumers and the Industry
For consumers, the scheme offers hope but at lower amounts than anticipated, with eligibility tied to pre-2021 deals involving DCAs or high commissions. 
Those with multiple agreements could see cumulative payouts up to £7,351 for three vehicles, including statutory interest. 
Case studies, like Jemma Caffrey’s 2009 Corsa purchase amid personal vulnerabilities, illustrate how inflated rates exploited consumers. The FCA strongly advises against claims management companies (CMCs), which charge up to 36% fees, potentially reducing a £950 payout by £342. Instead, consumers should complain directly to lenders or the FOS for free. 
Martin Lewis warns that using CMCs could mean “giving away 30% and getting nothing in return.” 
Industry-wise, major lenders like Lloyds (£1.15bn provision) and Santander (£295m) face substantial costs, potentially leading to higher future finance rates as they recoup losses. 
Experts like Stuart Masson of The Car Expert predict increased costs for borrowers, impacting economic growth and vehicle accessibility. Comparisons to PPI underscore the scale, though this scandal’s bill is smaller and more targeted. Critics, including Liberal Democrat MP Bobby Dean, call for enhanced transparency to prevent recurrence, while the Treasury emphasizes proportionate redress to maintain market competitiveness. The scheme’s design must navigate these tensions, ensuring fairness without destabilizing the £40 billion annual motor finance market.
What Consumers Should Do Next
If you financed a vehicle before January 28, 2021, check eligibility using free tools from MoneySavingExpert.com or MoneyHelper.org.uk. 
Signs of mis-selling include undisclosed commissions, inflated rates despite good credit, or unaffordability checks. 
Complaints paused since November 2023 will resume post-December 2025, but filing now secures your place. Await the October consultation for final details, but act promptly to avoid delays. As Rathi notes, “It’s fair for customers to be compensated,” but consumers must navigate wisely to maximize recoveries.
Conclusion
The mis-sold car finance scandal, while scaled back by the Supreme Court’s ruling, still promises redress for millions, albeit at under £950 per deal. 
With consultations looming and payouts on the horizon, this episode highlights the need for regulatory vigilance in consumer finance. By avoiding CMCs and staying informed, affected motorists can secure their due compensation, fostering a more transparent market for future generations.
Paul (Poison Fish) Manjyu Woodman
