The UK’s Financial Conduct Authority (FCA) has launched one of the largest consumer compensation schemes since the PPI scandal, potentially returning billions to motorists. This scheme targets mis-sold car finance agreements, with average payouts estimated at around £700 per agreement, benefiting millions of drivers.
The scheme follows the discovery of widespread misuse of discretionary commission arrangements (DCAs) in motor finance, which allowed dealers to increase interest rates without customers’ knowledge.
The FCA estimates that up to 14 million finance agreements between April 2007 and November 2024 could be affected, resulting in compensation claims worth approximately £8.2 billion.
This guide explains the FCA car finance compensation scheme, covering eligibility, potential payouts, and how to claim safely without third-party fees.
What is the FCA Car Finance Compensation Scheme and Why Was it Introduced?
The FCA car finance compensation scheme was launched in response to long-standing consumer concerns around mis-sold car finance deals, specifically those involving discretionary commission arrangements (DCAs).
These arrangements, now banned, allowed car dealers to adjust interest rates charged to buyers and earn more commission for higher rates.
This practice, largely hidden from consumers, often led buyers to unknowingly pay significantly more for their vehicle loans than necessary. According to the FCA, millions of consumers may have been overcharged under these opaque commission structures.
A Timeline of Regulatory Action
| Event | Date |
| FCA announces investigation into DCAs | January 2021 |
| FCA bans discretionary commissions | January 2021 |
| Official review and evidence gathering | 2022–2024 |
| Supreme Court ruling on finance claims | August 2025 |
| Proposed FCA compensation scheme | October 2025 |
| Expected scheme launch | Early 2026 |
The FCA’s objective is to deliver fair compensation to affected borrowers while simplifying the claims process and reducing unnecessary legal or claims management fees. Despite industry resistance, the regulator insists the scheme is essential to restore trust in the car finance market.
How Were Car Finance Agreements Mis-Sold to UK Consumers?
The mis-selling of car finance agreements in the UK stemmed from complex commission structures and a lack of transparency that left many consumers paying far more than necessary for their vehicle loans.
The Discretionary Commission Model
Under DCAs, lenders permitted car dealerships to set interest rates on finance deals. Dealers were then paid a commission based on the rate they chose, giving them a direct incentive to increase interest rates.
Customers were rarely aware that their interest rate could have been significantly lower, as the commission structure was not disclosed.
This model posed two main problems:
- Lack of transparency: Customers didn’t know they were being charged extra.
- Conflict of interest: Dealers could profit more by giving worse deals.
In 2021, the FCA banned DCAs after recognising their potential for harm. However, millions of agreements signed before this date remain affected, prompting a retrospective investigation.
Other Forms of Mis-Selling
In addition to DCAs, the FCA uncovered other questionable practices, such as:
- Unfair contract terms, where dealer commissions accounted for a disproportionate share of the loan.
- Failure to provide accurate or comparative information about available finance options.
- Exclusivity deals, where dealerships only worked with select lenders, limiting customer choice.
Who is Eligible for a Car Finance Refund from the FCA Compensation Scheme?
Eligibility for the FCA car finance compensation scheme depends on several key factors, including when your agreement was signed, what type of finance you used, and whether a discretionary commission was applied.
Key Eligibility Criteria
You may be eligible for a refund under the FCA’s scheme if:
- Your finance agreement was signed between April 2007 and November 2024
- You used Personal Contract Purchase (PCP) or Hire Purchase (HP) financing
- Your agreement involved a discretionary commission arrangement
- You overpaid interest due to undisclosed or unfair commission terms
Providers and Agreements Under Review
The FCA has not publicly released a full list of implicated lenders, but many major UK motor finance providers are expected to be part of the review.
More than 4 million complaints have already been submitted and paused, awaiting clarity on the regulator’s approach.
It’s important to note:
- Multiple claims are possible if you had more than one finance agreement during the period.
- Business vehicle agreements are typically excluded unless used personally.
How Much Compensation Could You Receive – And How is the £700 Estimated?
While the FCA has indicated that average payouts will hover around £700 per agreement, the actual compensation each motorist receives will vary based on multiple financial and contractual factors.
Understanding the £700 Average Payout
According to the FCA, the average redress amount is expected to be around £700 per agreement. This estimate is based on calculations of typical overpayments and average interest rate markups across affected loans.
However, the actual payout can vary widely depending on:
- The length and value of the finance agreement
- The commission structure used by the dealer
- The interest rate markup
- Whether any interest is added to the redress
Example Scenarios:
| Loan Value | Original Interest Rate | DCA Markup | Estimated Compensation |
| £12,000 | 9.5% | 2.5% | £600–£750 |
| £18,000 | 11.0% | 3.0% | £900–£1,100 |
| £9,000 | 8.0% | 1.5% | £400–£600 |
In some cases, interest is added to the payout, calculated using the Bank of England base rate +1%, averaging around 2.09% annually.
What is the Step-by-Step Process to Claim Your Car Finance Compensation?
The FCA aims to make the process simple and accessible, especially for consumers not using claims companies. Here’s a breakdown of how the process will work:
Step 1: Check Eligibility
Review your past car finance agreements. Look for any PCP or HP deals between 2007 and 2024. If unsure, request documents from your lender or dealer.
Step 2: Wait for Lender Contact or Submit Your Complaint
- If you’ve already complained: Lenders will prioritise reviewing your case. If they don’t hear from you within a month of contacting you, they will assume you want your case reviewed.
- If you haven’t complained: Expect contact within six months of the scheme launch. You must “opt in” to have your case assessed.
Step 3: Submit Complaint or Claim
You can use templates from MoneySavingExpert or the FCA to submit your complaint directly to your lender or broker.
Step 4: Escalate to the Financial Ombudsman Service (FOS)
If your complaint is rejected or unresolved, you can escalate it to the FOS for free.
Time Limits to Keep in Mind:
| Claim Type | Deadline |
| Already complained | Automatically reviewed (no deadline) |
| Never complained | Six months from lender contact |
| No contact received from lender | One year from scheme start date |
What Should You Do If You’ve Already Made a Complaint Before 2024?
Consumers who submitted complaints before the compensation scheme’s formal rollout will be treated differently depending on the complaint status:
- Resolved complaints: If you’ve already received a payout or a final response from your lender, you may not be eligible for further compensation unless the terms change.
- Pending or paused complaints: These will likely be reviewed first once the scheme begins.
The FCA has clarified that duplicate complaints are not necessary, and doing so may delay processing. However, updated contact information should be provided to ensure eligibility.
Is Legal or Third-Party Help Necessary to Claim Compensation?
The FCA has strongly advised that consumers do not need to use claims management companies (CMCs) or law firms to file for compensation.
While some individuals may prefer external assistance, consider the following:
- Claims companies typically charge 15–30% of your compensation
- Many provide no additional benefit
- Consumers can access free tools and guidance from MoneySavingExpert, Citizens Advice, and the FCA
When Might Legal Help Be Useful?
- Complex cases involving multiple lenders or disputes
- If you’re already represented and exiting would incur additional fees
- If you’re pursuing court action instead of the FCA scheme
The regulator has already taken action against over 700 misleading adverts promoting paid claim services.
Conclusion
The FCA’s car finance compensation scheme represents a pivotal moment for consumer rights in the UK. With average payouts expected at around £700, and over 14 million finance agreements potentially affected, the scale of redress could rival the infamous PPI scandal.
If you financed a car through PCP or HP between 2007 and 2024, you could be owed a significant sum. The good news? You can claim directly, without paying a single penny to a claims firm.
Now is the time to check your eligibility, gather your documents, and prepare to opt in once the scheme goes live in early 2026. Fair redress is within reach, and the FCA is committed to ensuring that consumers finally get what they are owed.
Frequently Asked Questions
Can I claim compensation if my car loan has already been paid off?
Yes. As long as the agreement was active between April 2007 and November 2024 and involved a DCA, you may still be eligible.
Will claiming compensation affect my credit score?
No, submitting a complaint or claim has no impact on your credit rating or financial history.
Are business vehicle finance agreements included in the FCA review?
No, most business and commercial agreements are excluded unless the vehicle was used personally.
How long will the FCA car finance compensation scheme last?
Consumers will typically have one year from the scheme’s start date to opt in and submit a complaint.
What happens if my car finance provider is no longer in business?
You may still claim through the Financial Ombudsman Service or the Financial Services Compensation Scheme (FSCS).
Is there a deadline to submit a car finance mis-selling claim?
Yes, you typically have six months from the time your lender contacts you or one year from the start of the scheme.
Can I claim on behalf of a relative or deceased person’s agreement?
Yes, legal representatives or next of kin can file a claim with proper documentation, such as a death certificate or proof of executorship.
