Car finance compensation plan under consideration by the Financial Conduct Authority - could you potentially qualify?
The Financial Conduct Authority (FCA) has announced plans to launch a consultation on an industry-wide compensation scheme for individuals who were affected by undisclosed discretionary commission arrangements (DCAs) in motor finance agreements. The consultation is set to be launched by early October 2025 and will be open for six weeks.
The proposed scheme aims to provide fair and easy compensation for those who paid more than they should have due to hidden commission arrangements. The FCA believes these arrangements, which allowed brokers or dealers to increase interest rates to boost their commission without informing consumers, could be unfair and unlawful in certain circumstances.
Who is Eligible?
The eligibility criteria for the compensation scheme is yet to be fully defined, but it is expected to cover customers with motor finance agreements dating back to 2007. These agreements involved DCAs that were not properly disclosed.
How Much Compensation?
The FCA estimates that most eligible individuals will receive less than £950 in compensation per agreement. The exact amount will be calculated based on the degree of harm suffered and may include interest payments, typically linked to the average base rate plus 1%.
The Consultation Process
The FCA will use the consultation period to define how customers can opt into the scheme and establish clear rules for firms to consistently and fairly decide who is owed compensation and how much. The total cost of the scheme is uncertain but could range from a minimum of about £9 billion up to £18 billion, depending on the scheme’s design and the total number of eligible claims.
Advice for Consumers
Consumers concerned about past mis-selling are advised to complain to their finance company directly, rather than using claims management firms which could cost them about 30% of any payout. The FCA provides a guide on their website for raising a complaint.
Nikhil Rathi, chief executive of the FCA, urged consumers not to use a claims management company or law firm, as this could cost a significant chunk of potential compensation awarded.
The Supreme Court Ruling
The UK's Supreme Court has previously ruled that in some cases, motor finance firms were not complying with rules and failing to properly disclose commission arrangements. This ruling left the door open for redress in certain cases.
Next Steps
The details of the proposed compensation scheme will be published by early October. If the scheme proceeds, it is expected that the first payments will be made in 2026. Consumers who think they were not told about commission and paid too much for their motor finance are encouraged to take action now.
The proposed compensation scheme, aimed at providing support for individuals affected by undisclosed discretionary commission arrangements in motor finance agreements, is expected to be open to customers with agreements from as early as 2007. This industry-wide initiative, set to launch in October 2025, will be overseen by the Financial Conduct Authority (FCA), who will use the consultation period to define eligibility criteria and establish rules for firms to determine fair compensation. Meanwhile, consumers concerned about past mis-selling are advised to complain directly to their finance company to avoid costly intermediaries.
