FCA to set up car finance scandal compensation scheme

The UK’s financial watchdog is to open a compensation scheme for people affected by the car finance scandal.

Last week, the Supreme Court ruled that including hidden commission arrangements in car finance loans was not automatically unlawful.

This means many people won’t get compensation because their commission payments were legal.

However, the court ruled that in certain cases, the failure to properly disclose commission arrangements could be unfair and unlawful.

And this could leave the door open for some people to claim up to £950 in compensation.

FCA wants ‘fair’ compensation scheme

The Financial Conduct Authority (FCA) has now confirmed it is setting up a compensation scheme to give “clarity and certainty” to consumers.

“It is clear that some firms have broken the law and our rules,” said Nikhil Rathi, chief executive of the FCA.

“It’s fair for their customers to be compensated. 

“We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal.”

When will a compensation scheme be up and running?

The FCA will begin consulting on what a compensation scheme will look at in early October.

If it goes ahead, the first payouts should be made next year.

What should I do next if I’ve been affected?

Anyone who has already complained doesn’t need to do anything.

If you’re worried that you weren’t told about commission and think you’ve paid too much, you should complain.

The FCA has urged people not to use a claims management company or law firm, as this could cost you around 30% of any compensation paid.

What is the car finance scandal?

In January 2024, the Financial Conduct Authority (FCA) started investigating discretionary commission arrangements (DCAs) on car loans issued between 2007 and 2021. 

DCAs helped banks and lenders providing car finance to allow dealers to set their own interest rates on repayment plans.  

This meant car dealers could undercut the bank or lenders’ preferred rate to secure a sale, or charge more so that they could earn higher commission. 

The practice was banned in 2021.