What Is Mis-Sold Car Finance?

Mis-sold car finance refers to agreements—typically PCP or HP—where hidden commissions, inflated interest rates, or unfair practices led consumers to overpay. If your deal was signed before 28 January 2021, you may be eligible for compensation.

You may be eligible for mis-sold car finance compensation if you took out a PCP or HP agreement before 28 January 2021 and were charged hidden or excessive commission. The FCA is investigating widespread mis-selling, and a redress scheme worth up to £18 billion is expected.

This guide will break down everything you need to know about mis-sold car finance, your eligibility for compensation, and the steps you can take to make a claim, all based on the latest official guidance.

Understanding Car Finance Mis-Selling

Car finance mis-selling primarily revolves around two types of commission issues and other unfair practices: Discretionary Commission Arrangements (DCAs) and undisclosed or excessive commissions.

Discretionary Commission Arrangements (DCAs)

Before 28 January 2021, many car finance lenders had DCAs with brokers, which often included car dealerships. Under a DCA, the broker had the discretion to adjust the interest rate offered to a customer. The higher the interest rate they set, the more commission they would earn. This system created a clear conflict of interest, as it incentivized dealers to inflate interest rates to boost their own earnings, often without the customer’s knowledge.

The FCA recognized this practice as problematic, stating it provided an incentive for buyers to be charged a higher-than-necessary interest rate, leading to overpayments. As a result, the FCA officially banned DCAs in January 2021.

Undisclosed and Unfair Commissions

Beyond DCAs, there have been concerns regarding whether any commission paid to dealers was lawful if it wasn’t fully disclosed to the customer. A landmark Supreme Court ruling in August 2025 partially overturned an earlier Court of Appeal decision. The Supreme Court determined that hidden commissions are not automatically unlawful and that dealers don’t have a legal duty to act solely in the customer’s interest.

However, the ruling did leave open the possibility for compensation claims where the commission arrangement was excessive, or the relationship between the dealer and consumer was otherwise unfair. For example, in the case of Marcus Johnson, the Supreme Court found the terms of his finance deal unfair due to the size of the commission payment (55% of the total charge) and misleading information provided by the dealer.

Other Types of Mis-Selling

You might also have a mis-sold car finance claim if you experienced any of the following during your agreement:

• You felt pressured to sign the deal or were not given adequate time to consider it.
• Fees and charges weren’t clearly explained to you.
• The terms of your agreement were unclear or misleading, leaving you uncertain about ownership or repayment details (e.g., the final balloon payment in a PCP deal).
• The lender didn’t conduct proper affordability checks to ensure you could realistically afford the agreement.

Timeline of Key Events:

• January 2021: The FCA banned Discretionary Commission Arrangements (DCAs) in motor finance.
• January 2024: The FCA launched a major investigation into potential widespread mis-selling due to historical DCAs.
• November/December 2024: The FCA extended a pause on firms dealing with all car finance commission complaints until after 4 December 2025 to ensure consistent, efficient, and orderly handling.
• August 2025: The Supreme Court partially overturned the Court of Appeal decision, ruling that hidden commissions were not automatically unlawful, but confirmed that claims could proceed if the commission was excessive or the relationship unfair. Following this, the FCA confirmed it will consult on a compensation scheme by October 2025.

Who is Eligible for a Claim?

You may be eligible to claim compensation for mis-sold car finance if you meet the following criteria:

• You bought a motor vehicle (including cars, vans, campervans, or motorbikes) on a finance scheme such as a Personal Contract Purchase (PCP) or Hire Purchase (HP) agreement.
• The finance agreement was taken out before 28 January 2021.
• The vehicle was purchased for primarily personal use (commuting counts as personal use).
• Your agreement included a Discretionary Commission Arrangement (DCA) that was not properly disclosed to you.
• Alternatively, even without a DCA, the commission arrangement was excessive or the relationship was otherwise deemed unfair (e.g., due to misleading information or high charges).
• You felt pressured to agree to the deal, terms were unclear, fees weren’t explained, or affordability checks were inadequate.

You can still claim if:

• The car has already been paid off, or the agreement has ended.
• The vehicle was repossessed.
• You had multiple eligible agreements; each could qualify for compensation.
• You are claiming on behalf of someone who has passed away.
• The lender has stopped trading (you may still be able to claim against the dealer or broker who arranged the agreement).

You are generally NOT eligible if:

• Your agreement was taken out on or after 28 January 2021.
• It was a Personal Contract Hire (PCH), often referred to as car leasing.
• It was a genuine 0% interest finance deal.
• The vehicle was primarily for business use (though specific conditions might apply for regulated credit agreements under £25,000 used for non-business reasons).

Many major lenders are subject to these claims, including Alphera Finance, Black Horse, BMW Financial Services, Close Brothers, Honda Finance, Hyundai Finance, Mercedes Finance, Moneybarn, Motonovo, PSA Finance, Santander, Toyota Finance, Vauxhall Finance, and Volkswagen Financial Services. However, some firms, such as Admiral, Bank of Scotland, Halifax, Lloyds (excluding Black Horse), and Oodle Car Finance, have stated they never used DCAs.

How Much Compensation Could You Receive?

While the exact amounts will be determined by the upcoming redress scheme, the FCA currently estimates that most individuals will likely receive less than £950 per agreement.

However, some successful claims have seen payouts of £1,486.08 plus interest for unfair rates, £1,351 plus interest for inflated rates, and £1,905 plus interest for hidden commissions. For claimants with multiple agreements (an average of 2.67 per person), the potential recovery could be around £2,536.50.

The compensation amount will depend on several factors, including:

• The size of the car finance loan and its duration.
• The interest rate you paid compared to the rate you should have been offered.
• The degree of harm suffered by the consumer.

In addition to the overpaid amount, interest is likely to be added to any redress payment. The FCA has suggested this could be around 3% per year simple interest, dating back to the start of the agreement. The Financial Ombudsman Service (FOS) has previously awarded 8% interest on overpayment amounts in successful cases.

The Compensation Scheme and What to Do Now

FCA’s Proposed Redress Scheme

The FCA plans to publish a consultation on the compensation scheme by October 2025. If the scheme goes ahead, the first payments are expected in 2026. The consultation will address crucial details, such as whether it will be an “opt-in” scheme (requiring you to actively confirm participation) or an “opt-out” scheme (automatic inclusion unless you decline). Firms will be required to make eligible customers aware of the scheme.

Should You Complain Now?

The FCA advises that consumers concerned about undisclosed commission or believing they paid too much should complain to their provider now. Submitting a complaint can be particularly beneficial for older agreements or if your contact details have changed, as it creates a formal record for your claim.

How to Make a Complaint

• Gather Information: Collect as many details as possible about your car finance agreement, including your name, policy number, agreement date, vehicle number plate, and the address you had when you took out the agreement. If you no longer have paperwork, you can check old bank statements or your credit report for agreements active within the last six years.
• Complain to Your Lender: Your complaint should be directed to the finance provider you paid each month, not necessarily the car dealer, unless you cannot identify the lender. You can use free template letters provided by organizations like MoneySavingExpert or Which?.
• Await Response: Your provider should send an acknowledgment within 8 weeks. However, due to the FCA’s temporary rules, they are not required to provide a final response until after 4 December 2025.
• Escalate if Unhappy: If you receive a final response and are not satisfied, or if the firm fails to respond by the deadline, you can escalate your complaint to the Financial Ombudsman Service (FOS). The deadline for referring complaints to the FOS has been extended to 15 months from the date of the final response, or until at least 29 July 2026 for many cases.
• Lender No Longer Trading: If your original finance provider has ceased trading, you may still be able to make a claim against the dealer or broker who arranged your agreement.

Why Avoid Claims Management Companies (CMCs)?

The FCA and consumer advocates, including Martin Lewis, strongly advise against using CMCs or law firms for these claims. Here’s why:

• High Fees: CMCs typically charge a substantial percentage of any successful compensation, ranging between 18% and 36% (including VAT), with some charging up to 30%.
• Free Alternatives: You can make a complaint for free directly to your lender or, if dissatisfied, escalate it to the Financial Ombudsman Service.
• Simpler Process: The FCA aims for any future redress scheme to be simple and accessible directly by consumers at no cost, making third-party services unnecessary.
• Cancellation Fees: If you sign up with a CMC and later decide to cancel, you might be charged a cancellation fee outside of a 14-day cooling-off period.
• Scam Warning: The FCA warns that scammers are actively contacting people, pretending to be from car finance lenders or the FCA, offering fake compensation in exchange for personal or banking details. There is no compensation scheme officially in place yet, and legitimate bodies will never ask for upfront payments or sensitive financial information over the phone or email.

Next Steps and Resources

Taking action now, even with the pause on responses, ensures your complaint is logged and you are in a position to benefit from any future redress scheme.

• Stay Informed: Sign up for email updates directly from the FCA for the latest information on the investigation and compensation scheme.
• Utilize Free Resources: Leverage free template letters available from reputable consumer sites like MoneySavingExpert or Which? to draft your complaint.
• Official Guidance: For direct guidance or to report an unauthorized firm, contact the FCA at 0800 111 6768. The Financial Ombudsman Service (FOS) website also provides detailed information and updates on car finance complaints.

Understanding your rights and taking proactive steps can make a significant difference in reclaiming what you may be owed. Think of the hidden commissions as a hidden tax added to your car purchase that you never agreed to pay. The current investigation aims to ensure those who paid this ‘hidden tax’ unfairly are finally compensated.

FAQ’S