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If you took out car finance in recent years, you could be in line for compensation under plans set out by the Financial Conduct Authority (FCA).
The scheme follows a Supreme Court ruling and the FCA’s conclusion that some lenders broke consumer law, while others failed to properly disclose commission payments to car dealers.
If you were overcharged, often because of discretionary commission arrangements (DCAs) and other commission types, you could be in line for compensation. The scheme was first announced in March, with the average payout now expected to be just over £800, higher than earlier estimates.
However, in May, fresh legal challenges to the scheme were launched by some lenders and a consumer group, potentially causing further delays.
Here’s what you need to know about the car finance scandal, including how the scheme works, whether you’re eligible and what to do next.
Around 2m new car and second-hand car deals each year are bought using car finance agreements. These deals usually involve paying an initial deposit, followed by monthly instalments with interest.
Before 2021, many lenders used discretionary commission arrangements (DCAs), which allowed brokers and dealers to hike interest rates to earn higher commission – around 40% of car finance deals were believed to have DCAs.
The FCA found that this created a clear incentive for you to be charged more than necessary, increasing the overall cost of your loan. It banned DCAs in January 2021, although complaints about overcharging had already started to emerge before then.
In 2024, the FCA launched an investigation into whether customers were overcharged between April 2007 and January 2021. This followed a Financial Ombudsman ruling against Barclays over unfair commission payments.
At the same time, a separate court case involving Close Brothers and FirstRand Bank examined whether undisclosed commissions rendered finance deals unlawful. Although the Court of Appeal initially ruled against the lenders, the Supreme Court later overturned that decision.
This means hidden commissions aren't automatically unlawful and the compensation scheme will focus mainly on DCAs rather than all car finance deals.
The FCA made several changes to its plans after feedback from consumers, firms and industry bodies since it launched the consultation in October 2025.
Fewer agreements qualified for compensation, with around 12.1m expected to be eligible, down from 14.2m. At the same time, the average compensation increased for older agreements, and a minimum interest rate of 3% a year was added to payouts.
When the scheme was announced, the FCA told consumers that if they'd already complained to their lender, they didn’t need to do anything else for now.
Under the original plan, lenders would review your case automatically and would tell you within three months whether you’re owed compensation.
If you haven’t complained, lenders were set to contact eligible customers directly, usually via email or other digital channels, provided proper fraud checks were in place.
Despite the ongoing legal challenges, the FCA has reiterated that you should still complain to your lender if you think you were affected.
If you think you've been affected by car finance mis-selling, see our guide on how to complain about a commission arrangement on a car finance loan. You can also use our free template letter to submit your complaint.
Under the current compensation plan, car finance loans taken out between 6 April 2007 and 1 November 2024 are covered by the FCA compensation scheme if you were not clearly told that:
However, you can't claim for this final point if there was a clear, visible link between the lender and the car manufacturer, such as having a similar name.
You may not be eligible for compensation if your case is considered fair based on these exceptions:
Claims for high-value loans – amounts higher than 99.5% of other loans that year – aren't covered by the scheme. However, these consumers can still complain to firms and the Financial Ombudsman Service (FOS) .
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The FCA says the average payout is likely to be around £829. If you had more than one finance agreement during this period, you could receive multiple payments.
For most people, the compensation will have two parts:
Interest will also be paid on compensation, based on the annual average Bank of England base rate per year, plus 1%, at a minimum of 3% in any year.
The FCA has said that compensation won’t put you in a better position than if you’d been treated fairly in the first place. Because of this, some payments will be capped, with around one in three cases affected.
Overall, the FCA estimates the scheme could cost around £7.5bn if 75% of eligible customers make a claim.
If you use a claims management company (CMC), you’ll need to give part of your payout to that firm if your claim is successful. This could be as much as 30% of any award.
The FCA has joined with the Solicitors Regulation Authority, Information Commissioner’s Office and Advertising Standards Authority to launch a taskforce to tackle poor handling of motor finance claims by CMCs and law firms.
The regulator noted that it had already removed or amended 800 misleading adverts, helped more than 28,000 consumers exit contracts free of charge, and reduced the high fees charged by three CMCs – protecting more than 500,000 consumers.
If you're using one, the FCA said that the companies must inform you of the regulator's redress scheme. They must also alert you to all charges and must be clear on exit fees.
The compensation scheme could face further delays after the FCA confirmed it had received four new legal challenges by three lenders and a consumer group.
The three lenders involved include CA Auto Finance, Mercedes-Benz Financial Services and Volkswagen Financial Services.
A separate challenge has also been brought by the consumer group Consumer Voice, which argues that payouts should be higher. Consumer Voice said the current scheme risks underpaying millions of people, potentially by billions of pounds, if redress is set too low.
However, the FCA said none of the legal claims it has received are expressly in the name of individual consumers. It also said it would defend the scheme ‘robustly’ in court.
At this stage, it’s unclear whether the challenges will succeed or how the scheme could change. This means eligibility rules, payout amounts or timelines could still be adjusted.
As part of the original plans, the FCA said there would be a short implementation period so firms can prepare before compensation payouts begin. This was up to:
Once the preparation period ended, lenders were then given three months to tell you if you're owed money and how much you will get.
The FCA said those who complained ahead of these deadlines would likely be paid sooner. Lenders are only set to contact people who haven’t complained if they believe that compensation is due. They will have six months after the preparation period ends to do this.
The FCA says the scheme is designed to avoid unnecessary or confusing messages being sent to people who aren’t eligible. If you’re not contacted during this time, you have until 31 August 2027 to make a claim under the current plan.
You don’t have to take part in the FCA’s compensation scheme if you don’t want to. You also have the option of taking your case to court.
The regulator says those who take their case to court could receive a larger compensation payment, although the outcome would depend on the facts of each case and could involve legal costs.
The FCA noted that its compensation scheme will be faster and simpler than pursuing legal action.
This story was first published on 16 January 2024. It was last updated on 5 May 2026
