Banks may be required to identify victims and issue compensation automatically, eliminating the need for claims.
Did you purchase a car, van, or motorbike on PCP or Hire Purchase (not a lease) before 28 January 2021? If so, you could be owed £1,000s. In January 2024, the Financial Conduct Authority (FCA) launched a major investigation into hidden and unfair car finance commission practices — a move that could see billions in overcharged interest refunded to millions of drivers.
Millions of drivers are set to receive automatic compensation following the unveiling of a mass redress scheme in response to the motor finance mis-selling scandal.
The first thing to do is to find out if you were impacted… Over 2.5 million complaints have been made via this free DCA tool.
Car Finance Mis-Selling – Key Timeline
January 2024: The Financial Conduct Authority (FCA) launched a major investigation into car finance mis-selling, focusing on hidden discretionary commission arrangements (DCAs). These allowed brokers and dealers to choose from a range of interest rates — earning more commission by charging customers higher rates.
October 2024: A landmark Court of Appeal ruling shook the industry. It found that a car sales firm couldn’t lawfully receive commission from a finance company without the customer’s fully informed consent. This made it more likely that anyone who paid commission on a car finance deal could be due compensation.
Note: The firms involved in the case – Close Brothers and MotoNovo – have appealed the ruling to the Supreme Court, with a hearing expected in April 2025.
December 2024: The FCA broadened its pause on complaint handling. Initially covering only DCA-related cases, it was extended to include all car finance commission complaints. This means providers aren’t required to give final responses to non-DCA commission complaints received from 26 October 2024 onwards — until after 4 December 2025.
March 2025: The FCA confirmed it would consult on a potential redress scheme. It also said that the next steps for handling complaints will be announced six weeks after the Supreme Court’s decision in April 2025 — putting the update in May 2025.
The Financial Conduct Authority (FCA) is preparing to launch an industry-wide compensation initiative involving multiple banks, ensuring motorists who may have been mis-sold car loans are repaid automatically. If motor finance customers have lost out from widespread failings, the FCA are likely to consult on a redress scheme.
Crucially, the scheme aims to bypass claims management companies by making banks responsible for identifying affected customers. This means compensation would be issued without the need for customers to submit claims.
Currently, drivers must actively file a claim against a bank to seek redress. However, the FCA has been investigating the widespread practice of banks paying car dealers undisclosed commissions for arranging loans for over a year. During this time, compensation claims have been paused while the regulator determines who may have been affected.
The FCA acknowledged that it would consider a mass compensation scheme if it confirms that customers suffered financial losses.
Originally scheduled for release before May, the watchdog’s final plans are now expected later this year. Meanwhile, a key Supreme Court ruling next month is set to determine whether motorists were indeed mis-sold car loans.
While judges will rule on the broader question of whether all car loans were mis-sold, the FCA is concentrating on a specific subset of loans.
This includes discretionary commission arrangements, where car dealers received bonuses for selling loans with higher interest rates.
Major banks, including Lloyds and Close Brothers, have been forced to allocate tens of millions of pounds to cover potential compensation costs. Last month, Lloyds’ total provision for the motor finance scandal surpassed £1 billion, while Close Brothers set aside £165 million.
Molly Preleski of PA Consulting noted: “An industry-wide redress scheme should ensure that consumers who have suffered losses receive compensation without needing to file complaints.
“It will also help firms distinguish between genuine cases and speculative complaints—whether from individual customers or claims management companies—where loan agreements were not actually impacted by these issues.”
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