If you’ve bought a car on finance in the last 15 years (PCP or HP), there’s a good chance you’ve seen headlines about the UK car finance scandal, and maybe even wondered if you could be owed money back.
It’s shaping up to be one of the biggest consumer compensation cases since PPI, and the Financial Conduct Authority (FCA) is working on a plan that could see billions paid out to affected drivers. Here’s everything you need to know.
What’s it all about?
At the heart of the scandal are “discretionary commission arrangements” (DCAs), a practice that used to be common between car dealers and lenders. Under these deals, dealers could adjust the interest rate on your car finance agreement. The higher the rate they set, the more commission they earned. The problem? Most customers had no idea this was happening, or that dealers were getting paid based on how much extra interest they charged.
The FCA banned these arrangements back in January 2021, but millions of older loans could still have been affected.
How many people might get compensation?
A lot. The FCA estimates that around 14 million car finance agreements (taken out between April 2007 and November 2024) could be eligible for some form of redress.
The average payout is expected to be around £700, but the exact amount will depend on how much extra interest each customer was charged. All told, the car finance industry could be facing a bill of £8–11 billion, making it one of the biggest compensation schemes ever seen in the UK.
I leased my car, am I also entitled to compensation?
In a word, no. Leasing is a different way of financing a car. You’re essentially paying a monthly fee to use a car owned by someone else (the leasing company). There’s no loan involved and no interest fees.
The legal background
The legal fight has been running for years and reached the Supreme Court in August 2025. The judges largely sided with consumers, ruling that in many cases, ‘secret’ or poorly disclosed commissions were unfair. However, they also made clear that not every case will qualify automatically. Some non-discretionary commission setups might not count if the disclosure was adequate.
That ruling helped to clarify the law, and reduced the potential scale of claims slightly, but it still leaves lenders facing a huge problem.
What the FCA is doing
The FCA has stepped in to coordinate an industry-wide compensation scheme rather than leaving millions of individual complaints to drag through the system.
It’s currently consulting on how redress should work, with a final plan expected by late 2025. Until then, it has paused complaint handling for affected finance cases until 4 December 2025.
That means if you’ve already complained, you’ll likely need to wait a bit longer to hear back. However, when the scheme launches, lenders will contact you if you’re eligible.
How much will it cost the banks?
Banks and finance houses have already started setting aside cash. Lloyds Banking Group recently increased its provision by £1.1 billion while Close Brothers has almost doubled its redress fund to £300 million. Industry-wide, the total could exceed £10 billion once all claims are settled.
Will everyone get money back?
Not necessarily. The FCA has said that eligibility will depend on how each deal was structured and disclosed. If your dealer didn’t set your interest rate, or if the commission was properly explained at the time, you probably won't be entitled to compensation.
That said, if you bought a car on hire purchase (HP) or personal contract purchase (PCP) before 2021, it’s worth keeping an eye on the FCA’s updates.
What to do in the meantime
Check your paperwork if you still have it, especially for older PCP or HP deals. You should also avoid claims management companies promising quick payouts. Despite what they may claim, they can’t fast-track the process.
