Car finance mis-selling compensation: what you need to know

A major Supreme Court ruling means millions of drivers will miss out on compensation for car finance mis‑selling. But redress remains on the table for many who were overcharged.

The Court found that hidden commissions paid by lenders to dealers on car loans were not unlawful. 

However, the Financial Conduct Authority (FCA) will consult on a compensation scheme for drivers who paid more because of discretionary commission arrangements (DCAs) – a type of commission banned in 2021.

Here, Which? explains everything you need to know about car finance mis-selling, including what the ruling means for motorists, how the FCA's scheme will work and who could still be eligible. 

What’s the deal with car finance?

Most new cars, and many second-hand ones, are bought using finance agreements – around two million are sold this way each year. 

These deals usually involve paying an initial deposit, followed by monthly instalments with interest. 

Before 28 January 2021, some car finance lenders had DCAs with brokers. Under these agreements, brokers and car dealers could increase the interest rate on a finance deal to earn more commission. 

The FCA said this created an incentive for customers to be charged more interest than necessary, leading to higher overall costs. 

It estimates that 99% of finance deals had a commission model – this included deals for cars, vans, camper vans and motorbikes. Of this, 40% are believed to have had DCAs. 

The FCA outlawed DCAs in January 2021, but many people complained that they were overcharged before the ban came into force. 

The regulator launched an investigation in January 2024 into potential overcharging of motor finance customers between April 2007 and January 2021 through DCAs. 

• Find out more: car finance explained

How does the Supreme Court come into it? 

The FCA's investigation was prompted by a single Financial Ombudsman Service (FOS) decision against Barclays, which found that the bank had unfairly paid commission to a credit broker. 

At the same time, a separate legal case was moving through the courts. This involved lenders Close Brothers and FirstRand Bank, and centred on whether car finance agreements were unlawful if the commission paid to dealers wasn’t properly disclosed to the customer.

The Court of Appeal ruled against the lenders, a decision that could have meant almost all car finance customers were eligible to claim compensation. The lenders appealed to the Supreme Court.

The FCA paused its own work while waiting for the outcome, as the ruling would determine the scope of the compensation scheme.

The Supreme Court has now overturned the Court of Appeal decision, ruling that hidden commissions were not unlawful and dealers did not have a legal duty to act solely in the customer’s interest.

With the judgment now published, the FCA can press ahead with its consultation on a compensation scheme for drivers overcharged through discretionary commission arrangements.

It will also consult on which non-discretionary commission arrangements should be included. These arrangements are ones where the buyer's interest rate did not impact the dealer's commission.

• Find out more: car finance options explained: PCP vs PCH vs HP and more

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Car finance compensation: key questions answered

The regulator will now consult on a redress scheme, which will determine who qualifies, how much can be paid and when drivers might receive a payout.

How did the Supreme Court ruling affect compensation? 

The Supreme Court decision has narrowed the scope of the FCA’s redress scheme. Instead of covering almost all car finance deals, it will now apply mainly to discretionary commission arrangements and potentially some other commission models.

This means millions of drivers will miss out on payouts — but a significant number could still receive compensation.

The FCA has said many motor finance firms failed to give customers key information about commissions, and that those affected should be compensated.

Nikhil Rathi, chief executive of the FCA, said: 'It is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated. We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal.'

What compensation is now due? 

A redress scheme would involve firms paying compensation to affected customers without requiring individual complaints to be submitted. 

Firms expected to be impacted by the ruling include:

• Barclays
• Close Brothers
• Lloyds Banking Group – which organises loans through the UK's largest motor finance provider, Black Horse finance
• Santander

The consultation will launch by early October and will run for six weeks. If the compensation scheme goes ahead, the first payments should be made in 2026.

It will also decide whether the scheme is opt in or opt out for those affected. 

• Find out more: most reliable car brands for 2025

How much compensation could I get?

According to the FCA, on a typical £10,000 motor finance agreement, discretionary commission arrangements could have caused customers to pay an additional £1,100 in interest over a four-year term.

However, the FCA will calculate any redress on the degree of harm suffered by the consumer. It currently estimates that most individuals will probably receive less than £950 in compensation. 

The final total cost of the scheme is currently estimated to be between £9bn and £18bn

• Find out more: compensation for consumers when things go wrong

Who is due a payout? 

Potentially, millions of motorists could receive payouts, depending on how their interest rate was set and what they knew about it.

The FCA says you may be affected by the issue if:

• you bought a car under a finance scheme (such as hire purchase or personal contract purchase) before 28 January 2021
• there was a discretionary commission arrangement between your lender and broker.

You won't be eligible if you used car finance on or after 28 January 2021, or if you used a hire agreement such as personal contract hire.

The FCA says not all motor finance customers will receive compensation, as many commission payments were legal. However, the court found that in some cases, failing to properly disclose commission could still be unfair and unlawful. 

As part of its consultation, the regulator will also decide whether there should be a minimum payout amount for eligible claims.

• Find out more: have I been mis-sold a financial product?

What do I need to do now?

The FCA's advice for those who believe they have been affected is to put in a complaint to their finance provider first. If you're unhappy with the response, you can then contact the FOS. 

People who have already complained don’t need to do anything. 

The FCA said: 'Our advice remains that consumers concerned that they were not told about commission and who think they may have paid too much for the finance, should complain now.'

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. 

Car finance mis-selling: a brief timeline

The following is a timeline of key events regarding the ongoing investigation into car finance mis-selling.

January 2021: FCA ban on DCAs comes into effect

Two years later in July 2023, the FCA's new Consumer Duty was launched. This aimed to set a higher and clearer standard for consumer protection in financial services as it required the financial service industry to put customers' needs first. 

It applied to all new products and services – including car finance. 

December 2023: Complaint numbers published

The FCA disclosed that around 10,000 car finance commission complaints had been referred to the FOS, with 90% of referrals coming since the start of 2022.

January 2024: The investigation begins

The FCA launches a major investigation into car finance mis-selling with a focus on DCAs.

It also announced a pause on the handling of complaints about car finance agreements involving a DCA. This pause meant lenders did not need to respond to complaints until September 2024. 

April 2024: Barclays judicial review

In April 2024, Clydesdale Financial Services, which operates as Barclays Partner Finance, challenged a decision by the FOS which ruled against them in a car finance complaint.  

At the same time, the FCA wrote to all car finance lenders telling them to ensure that they have enough money to cover any potential future compensation payments that might result from their past use of DCAs. 

The FCA also gave an update on its investigation into these DCAs, noting that while many lenders were cooperating, they were slow to provide the data that had been requested.

May 2024: FOS updates consumers on final decisions

In May 2024, the FOS said it was unlikely to issue final decisions on DCA complaints pending the outcome of Barclays’ judicial review and the Court of Appeal judgement from lenders Close Brothers and FirstRand Bank. 

September 2024: FCA extends pause on complaint handling

The FCA extended the deadline for the pause on complaint handling until 4 December 2025, as it waited for the outcome of both the Court of Appeal case and the judicial review. 

October 2024: Landmark court ruling

On 25 October 2024, the Court of Appeal ruled in favour of three borrowers filing complaints against Close Brothers and FirstRand Bank for potential car finance mis-selling.

The Court of Appeal determined that it was unlawful for car finance companies not to inform customers of any commission earned, whether that is discretionary and fixed percentage commissions. 

This ruling meant that car finance agreements that included non-discretionary commissions could also be open for claims. 

However, both companies appealed the decision to the Supreme Court.

December 2024: Barclays loses judicial review

The High Court upheld the complaint against Barclays Partner Finance. Alongside this, the Supreme Court confirmed it would hear the appeals in all three cases from October's Court of Appeal judgement. 

The FCA also extended a pause on firms handling car finance complaints to include all types of commission, not just DCAs, from 26 October 2024.

March 2025: Redress scheme confirmed

The FCA announced plans to consult on a redress scheme and stated that it will announce the next steps for complaints six weeks after the Supreme Court's decision.

April 2025: Supreme Court appeal heard

The Supreme Court heard the appeal against the October 2024 ruling.

August 1, 2025: Supreme Court ruling published

The Supreme Court overturned the Court of Appeals decision, which ruled that commission payments paid by buyers to car dealers were unlawful.

The panel of five judges sided with lenders Close Brothers and FirstRand Bank and found that they are effectively not liable for hidden commission payments to dealers. 

It said there was no bribery involved in the purchase arrangements and that dealers did not have a legal obligation that required them to act only in the customers’ interest.

• Find out more: how to complain about a car dealer

This story was first published on 16 January 2024. It was last updated on 4 August 2025.