Understanding the FCA’s car finance compensation scheme
- The Claims Guide
- Oct 8
- 3 min read
Why compensation is needed
The Financial Conduct Authority (FCA) examined about 32 million car finance agreements and found that many lenders and dealers did not tell customers about commissions paid for arranging loans. This meant brokers could adjust the interest rate to earn more commission, leading borrowers to pay more than they should have. Because around 14 million agreements (about 44 % of loans taken out between 2007 and late 2024) could be affected, the regulator decided a single compensation scheme was the fairest and most efficient way to put things right.
How much might drivers get back?
Early research suggested that people paid roughly £1,100 in extra interest on a typical four‑year loan. After the supreme court considered the issue in mid‑2025, the FCA said that most drivers would probably receive less than £950 per loan. The latest proposal reduces the average payment further: the FCA now expects around £700 per loan, though some people may get more and others less. As these numbers are per claim, some claimants will get much more as they will have claims for multiple agreements.
This reduction in expected payments has sparked debate. Consumer lawyer David Bott has argued that £700 may not reflect the true financial harm suffered. As a result many consumers may decide to sign up to Claims Management Companies or Solicitors, who will likely seek more compensation outside of the scheme. Calculating overpaid interest and hidden commission can involve reviewing old loan paperwork and financial data. A CMC or Solicitor can gather evidence, interpret loan contracts, and present a compelling case, saving consumers time and stress. They can also ensure claimants file complaints on every agreement that they are eligible for and no mistakes are made.
The FCA consultation estimates that, assuming 85 % of eligible consumers participate, lenders would owe around £8.2 billion in compensation
Who will qualify?
The scheme will cover hire‑purchase and personal contract purchase (PCP) agreements taken out from 6 April 2007 to 1 November 2024 where a commission was paid to the dealer or broker. To be eligible, the loan must feature at least one of these undisclosed arrangements:
Discretionary commission arrangement (DCAs) – the broker could increase your interest rate to earn more commission.
High commission – the commission was equal to or more than 35 % of the total cost of credit and 10 % of the loan amount.
Exclusive tie between broker and lender, limiting your ability to shop around.
Lenders can argue that a loan was still fair if they can prove that they disclosed the commission properly or that the borrower was sophisticated enough to understand the commission.
How will payouts be calculated?
For the most serious cases, those involving an undisclosed contractual tie and very high commission, drivers will be refunded the full commission plus interest. In most other cases, the FCA proposes paying half of what borrowers are estimated to have overpaid and half of the hidden commission. Simple interest will be added at the Bank of England base rate plus 1 %.
How the scheme will work
Automatic inclusion for existing complaints: If you have already complained to your lender about undisclosed commission, you will be included unless you opt out.
Invitation to opt in: Those who have not complained will be contacted by their lender within six months of the scheme starting and asked whether they want to opt in.
One‑year deadline: People who are not contacted (because lenders cannot find them) will have one year from the scheme’s launch to raise their claim.
If consumers want to make a claim outside of the scheme in order to get more compensation, they can make the case themselves or use a Claims Management Company or Solicitor.
What critics say
Consumer advocates believe the £700 average may undervalue individual losses. Some solicitors plan to take cases to court, where they hope to recover more than the scheme offers. The FCA admits that opting out and suing could lead to higher or lower compensation.
Advice for motorists
Check eligibility – If you took out a hire‑purchase or PCP car finance deal between 6 April 2007 and 1 November 2024 and were not told about commission, you may qualify for compensation. The scheme will only cover deals where commission was paid to the broker.
Consider complaining early – Consumers who have already complained will likely have their cases resolved sooner once the scheme goes live. You join the scheme using the FCA’s template letter, or argue your case outside of the scheme through a claims company, like The Claims Guide, or directly with the lender.
The FCA is accepting feedback on its proposals until 18 November 2025, with final rules expected in early 2026. Motorists should keep an eye on updates and be ready to act when the scheme goes live.
You do not need to use a claims management company to make your complaint to your lender. If your complaint is not successful you can refer it to the Financial Ombudsman Service yourself for free.
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