If you bought a vehicle on PCP (Personal Contract Purchase) or Hire Purchase before 28 January 2021, you’ve probably seen headlines about the “PCP car finance scandal”. For months, it’s been pitched as the next PPI, with huge payouts, millions affected, and banks scrambling.
But then came the Supreme Court ruling on 1 August 2025, and things got… complicated. But do not worry. Here’s the plain-English version of what’s going on, what the decision means, and how you can still claim.
For years, thousands of car dealers and finance companies across the UK operated under a system called Discretionary Commission Arrangements (DCAs). On the surface, it looked like a standard finance deal. You agreed to a price, a term, and a monthly payment. But behind the scenes, there was a financial incentive. That worked against the customer.
Under a DCA, the dealer had the power to set the interest rate on your PCP or Hire Purchase agreement within a certain range allowed by the lender. And here’s the problem: the higher the interest rate they gave you, the more commission they personally earned. This created what many see as a clear conflict of interest. The dealer’s goal to maximise their own earnings directly clashed with your goal to get the cheapest finance possible.
The worst part?
You weren’t told the dealer was earning commission at all.
You certainly weren’t told your interest rate might have been inflated purely to boost that commission.
For example, imagine you took out a £15,000 PCP deal over four years at 6% APR. If the dealer bumped that rate to 9% to earn more commission, you’d pay around £1,000 more in interest over the term without ever knowing why. Multiply that by millions of agreements, and you can see why this has become such a huge scandal.
The Financial Conduct Authority (FCA) eventually stepped in, calling the practice “an unacceptable conflict of interest” and banning it outright from 28 January 2021. By that point, though, millions of PCP and HP agreements had already been written under these terms, potentially costing consumers hundreds or even thousands of pounds more than they should have paid.
That’s the heart of the PCP scandal and why it’s now the subject of one of the biggest consumer compensation drives since PPI.
Personal Contract Purchase (PCP) is one of the most popular ways to finance a car in the UK, especially for drivers who like to change their vehicle every few years.
Here’s how it works in practice:
Deposit: You pay an upfront sum, often between 10% and 20% of the car’s value.
Monthly payments: You make fixed payments for a set term, usually 2–4 years. These payments only cover the car’s depreciation during your contract, not its full value.
End of term options: When the agreement ends, you can:
Hand the car back with nothing more to pay (as long as it’s within the agreed mileage and in good condition).
Part-exchange it for another car, often rolling any equity into your next PCP deal.
Keep the car by paying the final lump sum, known as the “balloon payment” or Guaranteed Minimum Future Value (GMFV).
Because you’re not paying off the entire cost of the car during the agreement, PCP can offer lower monthly payments than other finance types, but the total cost can be higher if you keep swapping into new deals.
Hire Purchase (HP) works a little differently. With HP, your monthly payments cover the full cost of the car (plus interest). Once you’ve made the final payment, you automatically own the vehicle outright. There’s no balloon payment at the end. Monthly payments are usually higher than PCP, but the agreement is simpler and you build ownership as you go.
Consumer groups and specialist law firms have described the PCP car finance scandal as potentially matching PPI in scale, with compensation forecasts reaching into the billions. Anticipation grew when several test cases were brought before the Supreme Court, seen as an opportunity to secure a landmark ruling that could influence thousands of similar claims.
The central question for the judges was deceptively simple:
“If a car buyer was never told about the dealer’s commission, should they automatically get back the extra interest they paid?”
On the surface, it seemed like an obvious “yes”. However, when the judgment was handed down on 1 August 2025, the result surprised many campaigners: out of three claimants, only one won their case.
The Supreme Court concluded that:
There is no automatic right to a refund just because commission was undisclosed.
Each claim must be judged on its own facts, including:
Whether the lender or dealer breached specific legal or regulatory duties.
Whether the interest rate you were charged was actually higher because of that commission.
Whether you suffered a financial loss directly linked to the arrangement.
In other words, simply proving that commission existed isn’t enough. You need to show that it changed the deal you got and caused you measurable harm.
For many individual claims, this ruling makes the purely legal route more difficult. It limits the chances of winning compensation through the courts unless your case fits certain criteria. But it’s important to stress: this is not the end of the road.
That’s because the Financial Conduct Authority (FCA) is now stepping in with its own redress scheme. The FCA’s plan is designed to give a fairer, faster route for affected drivers to get at least some money back without going through lengthy litigation.
The Financial Conduct Authority has confirmed it will launch a public consultation on its proposed redress scheme in October 2025. If the plans are approved, the scheme is expected to open for claims sometime in 2026. It is likely to cover anyone who bought a car on PCP or Hire Purchase before 28 January 2021 and was affected by a Discretionary Commission Arrangement.
While the payouts will vary, most people can expect to receive hundreds of pounds rather than thousands, with estimates suggesting many awards will be under £950.
The easiest way to start is by using a PCP claim eligibility checker. These online tools can quickly tell you whether you might have a case for compensation. All you need to do is enter some basic details, such as the type of finance you had, when you took it out, and the lender’s name. If it looks like your deal may have involved a Discretionary Commission Arrangement, you’ll get an instant indication that you could have a valid claim.
From there, you can choose to have a solicitor or claims specialist review your case in detail. They’ll request copies of your finance documents, confirm whether the interest rate was inflated, and calculate how much you could be owed. If everything stacks up, they’ll submit the claim to your lender and handle all the back-and-forth on your behalf.
The PCP scandal may not produce the same life-changing cheques seen with PPI, but it could still mean a worthwhile return for millions of drivers through the FCA’s redress scheme. Preparing your claim in advance of the 2026 launch will put you in the best position to secure what you’re owed.
Please follow and like us: