The never-ending saga of car finance commission payments continues to rumble along, with national news media hype generating plenty of headlines and a lot of misinformation. So what’s really going on?
What’s this all about?
If you’ve not been following this drama over the last 18 months, here’s a quick catch-up:
In January 2024, the Financial Conduct Authority (FCA) – which is the government’s financial industry regulator – opened an investigation into a particular type of car finance contract called a Discretionary Commission Agreement (DCA). These agreements allowed car dealers to jack up the interest rates on loans that had already been approved at a lower interest rate by the car finance companies. The car dealers earned extra commission for increasing the interest rates, sometimes on top of the commission they already earned from selling the finance in the first place.
In mid-2024, a few cases in the UK courts regarding a separate matter of disclosure of car finance commissions were grouped together and sent to the Court of Appeal. In October, this court ruled that any finance agreement that did not have clear, up-front disclosure of all commissions paid to the dealer was unlawful – which basically applied to most car finance agreements ever written. This ruling shook the finance sector to its core, as it opened up the very real possibility of tens of billions of pounds of compensation for tens of millions of customers.
The matter was pushed up to the Supreme Court, which overturned that particular ruling last Friday. It ruled that while the commissions may not have been properly disclosed, that didn’t mean that customers suffered any harm. Most car finance contracts have competitive rates of interest, and it’s perfectly reasonable for dealers to earn commission for selling a product or service.
The Supreme Court did rule that ‘unfair’ finance agreements can still be pursued by consumers, and upheld one case where a customer had been ripped off in his finance contract. The Court also said that it did not expect customers to be able to comprehend complex finance contracts, and that the burden of responsibility to make sure that contracts were fair lay with the lenders.
The FCA then issued a statement over the weekend to say that it was moving forward on a consultation with lenders for compensation to customers who have been treated unfairly, whether through DCAs or simply through unfair contracts. This will launch in October and run for six weeks, and it’s hoped that any compensation payments arising will start to be paid in early 2026.
There is still likely to be a big, newsworthy number attached to any compensation scheme. The FCA is talking about an overall payout in the range of £9-18 billion, which is enormous but substantially less than was feared this time a week ago, which was in the region of £44 billion.
So, who may still be eligible for compensation?
If you had a perfectly ordinary car finance contract, especially one with a low interest rate (or even a 0% rate), you’re probably not going to be eligible for any kind of compensation, even if your contract does not indicate that the lender was paying the dealer commission for arranging the finance. That’s going to be most customers.
If you had a contract with a discretionary arrangement, there’s a good chance you will be due some compensation. The catch is that there’s no way of knowing if you had a DCA as the contract won’t mention it. You need to contact your lender (not the dealer, and not the car manufacturer) to ask them whether your contract included a DCA.
Likewise, if you genuinely believe that your car finance agreement was unfair (eg – the amount of interest you paid on the loan seems like a lot, or you feel you were misled in any way), you may be eligible for compensation. However, the car for a contract to be considered ‘unfair’ is likely to be reasonably high – just because you felt you didn’t get a good deal doesn’t mean there was anything untoward happening.
How do I make a claim for compensation?
Many people have already made a complaint to their finance lenders already. If you have done this, then there’s nothing further you need to do at this time. The finance company should have your details and will get back to you once we know what will be happening.
If you believe that your car finance agreement may qualify for this proposed compensation scheme but you haven’t made any complaint, the FCA advises that now is the time to get in touch with your lender and get your enquiry on record.
You’ll need to know who the lender was for your loan, which will be clearly listed in your finance contract. If you don’t have this, you can try going back to the dealer where you bought the car, but don’t expect them to be falling over to help you out.
Most lenders now have forms on their websites that you can complete to question whether your car finance agreement contained any discretionary commission provision, as well as asking for any information about the interest rate, overall interest and commission payments if you don’t have that information.
Bear in mind that there will probably be thousands of other people trying to do exactly the same thing, so there may be some delay in the finance company acknowledging your complaint and confirming the relevant information. This is not really a problem at the moment, as consultation on the proposed compensation scheme is not going to be finalised for several weeks anyway.
Should I register with a claims management company?
No. You don’t need to, and if the FCA’s process works properly then it won’t improve the chances of you getting compensation or how much you may get. On top of that, you’ll lose a chunk (potentially up to 30%) of any compensation payment to the legal firm.
The FCA is adamant that its process will be easy for customers to use, it will be free to use, and it will result in a fair payment. If that turns out not to be the case, you can be sure that we’ll be shouting about it from the rooftops.
What are my chances of getting compensation?
If you had a discretionary commission agreement in your car finance contract (which you won’t know by reading the contract, you’ll need the lender to advise you), then you probably have a good chance of getting some sort of compensation. The lenders have pretty much put their hand up on this to admit wrongdoing, so this looks like going ahead in one form or another.
If your agreement is a fixed-rate contract (so the dealer did not have the ability to manipulate the interest rate), it will depend on whether the contract is deemed to be unfair. This will almost certainly have a higher threshold for proving any loss than with a discretionary agreement. The FCA will be consulting with the lenders on this, to work out where the line needs to be drawn to ensure that it’s fair.
The FCA has said that it’s looking at car finance agreements dating as far back as 2007. This could be quite problematic, as the finance companies are not required to keep old contract data back that far so proving that contracts even existed, let alone were unfair, could be difficult. The industry representatives, the Finance & Leasing Association (FLA) has expressed doubt that older claims can be sufficiently investigated to satifsy any requirements that the FCA may have.
How much compensation will I get?
If you are considered eligible for a compensation payment, you should be thinking in terms of hundreds of pounds, not thousands. So ignore all those annoying ads all over social media and commercial radio telling you that you could be owed thousands of pounds just for having a car finance agreement.
The FCA has indicated that payments are likely to be less than £950, although the final amount due to you will depend on how much you borrowed, how long ago it was (there will be an interest calculation) and what sort of agreement you had. So it could be significantly less, or maybe more.
When will I see my compensation payment?
The FCA has indicated that this is likely to be early next year. The consultation process should be wrapped up by October/November, so hopefully the final plan will be in place and ready to roll out in early 2026.
So what happens next?
The FCA is going to launch a formal consultation process with the lenders, in which it will put forward its plans for a compensation scheme. This is likely to start in October and should take about six weeks.
The consultation will try to establish who is eligible for any compensation, what factors should be considered to determine whether a contract was ‘fair’ or ‘unfair’, how interest should be calculated, and how much a customer has actually lost as a result of their unfair contract.
Once the process is signed off, the lenders should be getting in touch with you if you’ve made a complaint via their website. But we’ll have more information on exactly how it will all work once the FCA finalises the details. Stay tuned!