Car financing compensation of £950 to be distributed to millions of drivers as plan for the scheme unveils; eligible drivers encouraged to check for potential claims.
In a significant move, the Financial Conduct Authority (FCA) has proposed an industry-wide redress scheme to compensate consumers who were unfairly treated due to non-disclosure of commission payments from lenders to car dealers when they bought cars on finance. This scheme aims to provide a fair, timely, and easy way for consumers to receive compensation without the need for claims management companies or law firms, potentially reducing their payout by up to 30% in fees.
The proposed scheme primarily covers customers who purchased vehicles under finance agreements such as Hire Purchase (HP) or Personal Contract Purchase (PCP) before the ban on Discretionary Commission Arrangements (DCAs) in January 2021. Those who were not properly informed about the commission their finance providers paid to dealers could potentially have paid more than they should have.
Roy Turner, a pizza delivery worker, could be one of the many beneficiaries of this scheme. In 2016, Roy bought a BMW 118D and was charged an eye-watering £9,356 in interest, bringing his total bill to £17,996. Roy had a discretionary commission arrangement for his car, and the car dealer did not do an affordability check to see if he could afford the monthly repayments.
The FCA estimates that most drivers will most likely receive no more than £950 compensation each. However, Roy, who was charged an interest rate of 39.1% APR and had monthly repayments of £157 for a five-year loan term, could potentially receive a larger sum. Roy cannot remember having a conversation about any commission he would have to pay for.
Consumers who suspect they were misled are advised to complain first to their finance provider and, if unsatisfied, escalate to the Financial Ombudsman. Those who have already complained do not need to do anything further. The consultation for the scheme was due to launch in October 2025, with potential compensation payouts starting in 2026.
It is important to note that consumers are cautioned against signing up with car finance claims firms. Instead, MoneySavingExpert.com provides a free email template to help complain to a finance provider. The FCA stresses that the scheme will be straightforward and discourage the use of third-party claims companies to protect consumers' compensation.
The total cost of any compensation scheme will depend on the outcome of the consultation, but the FCA estimates it will be lower than £9 billion. The Supreme Court overturned a landmark case, meaning payouts will not be as huge as previously thought. The Treasury will work with regulators and the banking sector to understand the impact of the ruling on firms and consumers.
This scheme follows a Supreme Court ruling clarifying when commissions and disclosure practices may have created an unfair relationship under the Consumer Credit Act. The FCA will launch a consultation by early October, and if a redress scheme goes ahead, payments will start being issued in 2026. Compensation claims will be decided on a case-by-case basis.
It is estimated that around 14.6 million car finance agreements taken out between 2007 and 2020 were done so with DCAs. Drivers who took out PCP and hire purchase agreements, as well as those hit with excessive commission charges, could be in line for compensation. All compensation claims can be made multiple times per household, if more than one vehicle was bought.
[1] Financial Conduct Authority (FCA) - [Link to FCA Website] [2] Financial Ombudsman - [Link to Financial Ombudsman Website] [3] MoneySavingExpert.com - [Link to MoneySavingExpert Website] [4] Consumer Credit Act - [Link to Consumer Credit Act]
- Individuals who purchased vehicles on personal-finance agreements like Hire Purchase (HP) or Personal Contract Purchase (PCP) before the ban on Discretionary Commission Arrangements (DCAs) in January 2021 might be eligible for compensation from the proposed industry-wide redress scheme initiated by the Financial Conduct Authority (FCA).
- Those who were not properly informed about commission payments their finance providers paid to car dealers could potentially have paid more than they should have, and as a result, may find relief in the FCA's proposed redress scheme aimed at providing a fair and easy way for customers to receive compensation.
