Earlier this year, the FCA confirmed it was consulting on a redress scheme and aims to announce the next steps for complaints within six weeks of the Supreme Court’s decision
A major update has been issued for millions of drivers who are waiting to see if they are due compensation over car finance mis-selling.
The Financial Conduct Authority (FCA) is currently investigating whether drivers were unknowingly overcharged when they took out car loans. Specifically, the case is looking into car finance deals taken out before January 28, 2021, which contained “discretionary commission arrangements”.
This allowed car dealers to adjust the interest offered to customers without informing them, to increase their commission.
The FCA banned this practice in 2021. However, last year, the independent complaints arbitrator, the Financial Ombudsman Service (FOS), said it had heard from “more than 10,000” people who feared they had been overcharged.
The scandal is being compared to the infamous Payment Protection Insurance (PPI) scandal from 2008.
The financial watchdog is currently waiting on a Supreme Court Verdict, which will decide whether to uphold a previous case that ruled several car finance schemes unlawful. If upheld, millions of drivers across the UK would be eligible for compensation. The outcome is set to be confirmed in July this year.
Earlier this year, the FCA confirmed it was consulting on a redress scheme and aims to announce the next steps for complaints within six weeks of the Supreme Court’s decision.
In an update shared today, the FCA said it wanted to avoid the use of claims management companies in any compensation scheme for mis-sold car loans.
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Claims companies apply for compensation on behalf of individuals; however, they take a cut of the payout for their work. This means consumers do not keep all of the compensation they are owed. The 2008 PPI scandal saw a vast number of claims companies push their services onto affected consumers.
According to a report from Reuters, the regulator said it aimed to make any redress scheme “comprehensive, swift, and easy for consumers to take part in” – without using claims management companies.
The FCA is working on a potential redress scheme so it can move quickly if needed, but it hasn’t decided whether consumers might have to opt into any scheme or would be automatically included unless they opt out.
According to some analysts, the car loans scandal is projected to cost lenders, including Santander UK, Close Brothers, Barclays, and Lloyds Banking Group, over £40billion.
Lloyds Banking Group, Close Brothers, and Santander have together already set aside more than £1.5billion to cover potential claims.
However, the FCA said today that these estimates were too high. They said: “We’ve seen a range of redress rates suggested. This includes some highly speculative figures by some CMCs and law firms.”
Martin Lewis has been campaigning on this issue over the last year and has previously urged anyone who thinks they may have been affected to put in a complaint now, in case a cut-off date for complaints is introduced.
You should submit your complaint directly to the lender that provided the car finance – not the broker or car dealer where you got your vehicle from.
You could end up being eligible for compensation if you weren’t told about commission and may have paid too much for your car finance, or if you had a car finance deal that contained a DCA. MSE has a free car finance tool to help you complain. Car finance lenders have until December 4, 2025, to respond to complaints.
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