Car Finance Commission Scandal: Are You Owed Money — and What to Check Before Signing

For years, many car dealers in the UK earned hidden commissions from lenders for arranging finance on their behalf. The most controversial of these were discretionary commission arrangements (DCAs), where the dealer could increase the interest rate you paid above the lender's minimum — and the higher the rate they set, the larger their commission.

This created an obvious conflict of interest. The dealer was not incentivised to find you the cheapest finance deal. They were incentivised to charge you the highest interest rate they could get away with. Crucially, most buyers were never told this was happening.

The FCA banned DCAs in January 2021, but the damage had already been done. On 1 August 2025, the Supreme Court delivered a landmark ruling confirming that the failure to disclose these commission arrangements to borrowers could constitute an unlawful act. The ruling built on the earlier Court of Appeal decision in Johnson v FirstRand and established a clear legal principle: if you were not told about a commission that the dealer earned on your finance deal, the agreement may have been unfair.

The scale is enormous. The FCA's review of motor finance estimates that around 44% of all motor finance agreements entered into between 6 April 2007 and 1 November 2024 will be found to involve unfair commission structures. That is tens of millions of agreements.

The FCA is now building a formal redress scheme, expected to launch in mid-2026, that will standardise how lenders handle complaints and calculate compensation. But you do not need to wait for the scheme — you can complain to your lender right now.

You may be affected if you entered into a motor finance agreement — including Personal Contract Purchase (PCP), Hire Purchase (HP), or a dealer-arranged personal loan — at any point between 6 April 2007 and 1 November 2024. The commission issue applies regardless of whether the car was new or used, and regardless of the value of the vehicle.

The FCA estimates the average compensation per affected agreement will be around £700. However, individual payouts will vary significantly depending on the size of the finance agreement, the interest rate charged, and the extent to which the dealer inflated the rate above the lender's minimum. Some borrowers with larger finance agreements or particularly aggressive rate mark-ups could receive considerably more.

Here is how the compensation is broadly expected to work:

• The commission itself — the portion of your interest payments that went to the dealer as commission should be refunded.
• 8% simple interest — the FCA's standard approach adds 8% per year simple interest on the overpaid amount, calculated from the date of each overpayment to the date of the refund.
• Tax deduction — lenders will deduct basic-rate income tax (20%) from the interest element, as required by HMRC. You receive a certificate and can reclaim from HMRC if you are a non-taxpayer.

If you had multiple car finance agreements during the qualifying period — which many UK drivers will have done — you can claim on each one separately.

These are illustrative figures based on the FCA's £700 average for a typical £10,000 agreement. Your actual compensation depends on the specific commission structure used in your deal. For a detailed comparison of car finance types and how they work, see our car finance guide: PCP vs HP vs personal loan.

For more on this topic, see our guide to PCP vs HP vs Personal Loan.

The good news is that claiming is free, straightforward, and you absolutely do not need a claims management company (CMC) to do it for you. CMCs will typically take 25-40% of your compensation as their fee — for a process you can complete yourself in under an hour.

Here is how to check and claim:

Step 1: Gather your paperwork. Dig out your original finance agreement. You need the name of the lender (not the dealer), the agreement number, the date, and the amount financed. If you no longer have the paperwork, your lender is required to provide copies on request. You can also check your credit report — past finance agreements will appear there, which can help you identify lenders you may have forgotten about.

Step 2: Write to your lender. Send a formal complaint to the lender (not the dealer) stating that you were not informed about any commission arrangement on your motor finance agreement and that you believe the commission was unfair. You can find template letters on the MoneyHelper website. Keep it simple — you do not need legal language.

Step 3: Wait for the response. Under the FCA's current rules, lenders must respond to commission complaints by after 31 May 2026. Many lenders have paused responses pending the formal scheme launch, but your complaint is logged and your rights are preserved.

Step 4: Escalate if needed. If you are unhappy with the lender's response — or if they reject your complaint — you can escalate to the Financial Ombudsman Service for free. The Ombudsman has the power to order compensation.

Important: Do not pay a CMC. The entire process is free. The FCA, MoneyHelper, and the Financial Ombudsman all provide free guidance and support. Any firm cold-calling you about car finance compensation should be treated with extreme caution — legitimate organisations do not operate this way.

Whether or not you are claiming compensation for a past agreement, anyone considering car finance in 2026 should be more vigilant than ever about the terms they are agreeing to. The regulatory landscape has improved since the DCA ban in 2021, but there are still important checks to make.

1. Ask about commission upfront. Since the DCA ban, dealers must now use fixed commission models, but commission still exists. Ask the dealer directly: "How much commission do you earn on this finance deal?" They are required to disclose this. If they are evasive, walk away.

2. Compare the APR with personal loan rates. With the base rate at 3.75%, competitive personal loans for borrowers with good credit history are available at 5-7% APR. If the dealer is quoting you 9%, 10%, or higher, you may be paying a significant premium for the convenience of dealer-arranged finance. Our loans guide explains how to compare effectively.

3. Understand the total amount payable. Monthly payment figures are deliberately designed to look manageable. Always ask for the total amount payable over the full term, including any balloon payment on a PCP deal. A car advertised at £299/month for 48 months with a £10,000 balloon payment will cost you £24,352 plus your deposit — potentially much more than the car's original price.

4. Check your affordability. Under FCA affordability rules, lenders must verify that you can afford the repayments. But their affordability checks may not account for your full financial picture. Do your own budget: can you comfortably make the payments if interest rates rise or your income changes?

5. Consider the full cost of PCP. PCP deals have excess mileage charges (typically 5p-30p per mile), condition charges at return, and a large balloon payment if you want to keep the car. Factor these into your decision. For many buyers, HP or a personal loan works out cheaper overall.

The chart above illustrates how total costs accumulate over a four-year term for different finance types on a £15,000 car. The PCP line jumps sharply in year four when the balloon payment becomes due — a cost that catches many buyers off guard.

The car finance commission scandal is one of the largest consumer redress exercises in UK financial history — potentially larger than the PPI scandal that saw banks pay out over £38 billion. The FCA's intervention signals a broader shift in how financial services regulation protects consumers from hidden costs and conflicts of interest.

For the motor finance industry, the implications are significant. Major lenders including Close Brothers, Lloyds Banking Group (through Black Horse), and Barclays Partner Finance have set aside billions in provisions for potential payouts. The sector is fundamentally restructuring how dealer commissions work, moving towards transparent fixed-fee models.

For consumers, the lesson is clear: always ask what the person selling you a financial product earns from the transaction. This applies not just to car finance but to mortgages, insurance, and investment products. Transparency is your best protection.

The FCA's redress scheme, once launched, will provide a streamlined process for the millions of affected agreements. But the window for complaints covers agreements made up to 1 November 2024, so if you have taken out car finance in the past 17 years, it is worth checking whether you are owed money — even if you think the amount might be small. At an average of £700 per agreement, with many UK drivers having had two or three financed cars in that period, the total could be substantial.

This article is for informational purposes only and does not constitute financial advice. For guidance specific to your circumstances, consider speaking to a qualified financial adviser. The FCA provides free consumer guidance at fca.org.uk.