Car Finance Mis-Selling in the UK: Are You Owed Money?

Millions of British motorists who financed a car purchase before January 2021 could be entitled to hundreds of pounds in compensation, following a prolonged regulatory and legal battle over secret commission payments that inflated the cost of borrowing without buyers' knowledge. The scandal — which consumer advocates have likened in scale to the PPI mis-selling crisis — centres on a practice known as discretionary commission arrangements (DCAs), in which car dealers were permitted to set their own interest rates and earn higher commissions from lenders the more they charged customers.

What Were Discretionary Commission Arrangements?

For years, when a consumer walked into a dealership and arranged finance on a vehicle, they were, in most cases, entirely unaware that the dealer had the power to adjust the interest rate on their loan. The higher the rate the dealer applied, the greater the commission they received from the finance company. This created an obvious conflict of interest: rather than finding a customer the best available deal, the dealer had a direct financial incentive to push rates up.

According to figures from the Financial Conduct Authority (FCA), lenders paid out roughly £300 million a year in discretionary commissions under this model. The regulator banned the practice in January 2021, but that ban did not retroactively compensate the consumers who had already been overcharged.

The FCA launched a formal review of historical motor finance complaints in early 2024, pausing many cases while it assessed the scale of consumer harm. A subsequent Court of Appeal ruling, and later Supreme Court intervention, fundamentally shifted the legal landscape — finding that lenders and dealers had a fiduciary duty to disclose commission arrangements to borrowers. The ruling opened the door to a far broader wave of claims than the FCA's initial review had anticipated.

How Big Is the Potential Redress Pot?

This is where the figures become eye-watering. As reported by the BBC and confirmed through analysis from major financial institutions, analysts have estimated the total industry liability at anywhere between £13 billion and £30 billion — numbers that place the scandal firmly in PPI territory.

The major lenders — including Close Brothers, Santander Consumer Finance, and Black Horse (part of Lloyds Banking Group) — have all set aside substantial provisions to cover potential payouts. Close Brothers temporarily suspended its motor finance lending altogether as it assessed its exposure.

For individual consumers, the sums at stake are more modest but still meaningful. Which? has estimated that average overcharges of several hundred pounds per agreement are typical, though anyone who financed a higher-value vehicle or a longer-term deal could be looking at considerably more.

Who Can Make a Claim?

If you took out a Personal Contract Purchase (PCP) or hire purchase agreement through a UK car dealership at any point before 28 January 2021, you may have a valid complaint. The key criteria are:

  • The finance was arranged through a dealer (rather than directly with a bank or building society)
  • A discretionary commission arrangement was in place between the dealer and the lender
  • You were not informed of the commission or the dealer's ability to increase your interest rate

Crucially, you do not need to still own the vehicle, and the agreement does not need to be active. Claims can cover finance taken out up to six years ago under the Limitation Act, though the FCA's review is examining a broader historical window.

The process begins with a formal complaint to your lender. Under FCA rules, lenders have eight weeks to respond. If they reject your complaint — or fail to respond — you can escalate to the Financial Ombudsman Service free of charge.

Independent resources such as QuidCompare can help you identify which lenders were involved and what steps to take, without the cost associated with claims management firms.

Should You Use a Claims Management Company?

The rise of this scandal has predictably attracted a wave of claims management companies (CMCs) promising to handle your complaint on a no-win, no-fee basis. While these firms can be legitimate, the fees they charge — typically between 20% and 36% of any award — can significantly reduce what you actually receive.

The good news is that making a complaint is straightforward and free. You simply need to write to your lender, explain that you believe you were subject to a discretionary commission arrangement, and request that they investigate. Template letters are available from Which? and the Financial Ombudsman Service.

If your claim is upheld, any redress will typically be applied directly to your account, reducing outstanding debt, or paid out as a cash refund if the agreement has ended. The FCA has indicated it may impose a consumer redress scheme to streamline payouts if voluntary complaints handling proves inadequate.

What Happens Next?

The FCA is expected to publish the findings of its formal review later in 2026, at which point a clearer framework for mass redress is likely to emerge. In the interim, lenders continue to handle individual complaints, though some are processing them slowly — partly because the volume is substantial and partly due to ongoing legal uncertainty about the precise scope of liability.

Consumer groups have urged the government to ensure the process is straightforward and that no eligible borrower misses out simply because they were unaware of their rights. With millions of affected agreements potentially in scope, the car finance scandal looks set to dominate the UK consumer finance landscape for some time to come.

If you financed a car before 2021, it is worth checking your paperwork, contacting your lender, and exploring your options. The process costs nothing — and you may find you are owed more than you think.