The car finance compensation scandal has dominated UK headlines throughout 2025, and for good reason. Millions of British drivers could be entitled to significant payouts following revelations about how lenders and dealerships have been handling commission arrangements for years. If you bought a car on finance between 2007 and 2024, this comprehensive guide will help you understand exactly what’s happening, who qualifies, and how to claim your compensation without paying unnecessary fees.
The Landmark Supreme Court Decision That Changed Everything
On 1 August 2025, the UK Supreme Court delivered a pivotal judgment that reshaped the entire car finance landscape. The ruling addressed three conjoined cases: Johnson v FirstRand Bank Limited, Wrench v FirstRand Bank Limited, and Hopcraft v Close Brothers. This decision fundamentally altered how the financial industry approached motor finance commissions and triggered an unprecedented compensation scheme affecting millions of UK drivers.
The Supreme Court determined that whilst car dealers did not owe fiduciary duties to customers—overturning the Court of Appeal’s earlier decision—the relationship between lenders and borrowers could still be deemed unfair under the Consumer Credit Act 1974. This seemingly subtle distinction created massive implications for the industry and provided the legal foundation for the Financial Conduct Authority’s proposed redress scheme.
Marcus Johnson, the lead claimant in the case, purchased a Suzuki Swift in 2017 through a finance arrangement with FirstRand Bank. A dealership received a commission of £1,650.95—representing 25 percent of the loan amount. Johnson was never informed about this substantial commission payment or how it inflated his interest rate. The Supreme Court ruled this relationship was unfair and ordered FirstRand to repay the commission plus interest. This single judgment opened the floodgates for compensation claims across the UK motor finance industry.
Understanding What Went Wrong: The Commission Arrangement Scandal
For nearly two decades, car finance has been structured in ways that many customers didn’t understand or weren’t told about. The core issue revolves around how lenders compensated dealerships for arranging finance. Instead of charging drivers a transparent fee, lenders paid commissions to dealerships based on the interest rate charged to the customer.
This created a perverse incentive system. When dealerships could set or influence the interest rate—known as discretionary commission arrangements or DCAs—they had motivation to inflate rates to earn higher commissions. A customer might have qualified for a 5 percent interest rate but ended up paying 9 percent because the dealership increased the rate to boost their commission payment.
The Financial Conduct Authority had already banned DCAs from 28 January 2021, recognising the conflicts of interest they created. However, millions of agreements made before that date remain affected. The FCA estimates that around 44 percent of all motor finance agreements made since 2007 involved commission arrangements that were either improperly disclosed or fundamentally unfair to customers.
Between April 2007 and November 2024, the FCA estimates approximately 14.2 million finance agreements could potentially fall under the compensation scheme. This represents one of the largest consumer redress exercises the UK financial sector has ever undertaken.
The Scale of the Problem: Billions in Compensation
The numbers involved in this compensation scandal are staggering. The FCA currently estimates that total compensation could reach between £8.2 billion and £11 billion when implementation costs are included. This reflects the widespread nature of the problem across the entire industry.
The average compensation payment is expected to be approximately £700 per agreement. However, this average masks significant variation. Some customers who were victims of extreme misconduct—similar to Marcus Johnson’s case with its 25 percent commission—could receive significantly more. Others with smaller or better-disclosed commissions might receive less.
The FCA’s calculations assume that approximately 85 percent of eligible customers will participate in the compensation scheme. If uptake is lower, individual compensation amounts could potentially increase. Conversely, if more customers participate than expected, individual payouts might be adjusted downward.
These figures dwarf many previous financial scandals. To put the scale in perspective, the Payment Protection Insurance scandal cost lenders approximately £28 billion over several years, though it affected a different segment of financial products. The motor finance compensation scheme represents an enormous financial undertaking for lenders, particularly those who were most aggressive in using discretionary commission arrangements.
Who Qualifies for Compensation: Are You Eligible?
Determining whether you’re eligible for compensation requires checking several specific criteria. The scheme is carefully targeted at customers who suffered from unfair arrangements during a defined period. Understanding these eligibility requirements is crucial before taking action.
Finance Agreement Type: You qualify only if you purchased a car using Personal Contract Purchase (PCP) agreements or Hire Purchase (HP) agreements. These are by far the most common car finance products in the UK. Importantly, leased vehicles are not included in the scheme. Personal loans used to purchase cars through dealerships do qualify, as do lease purchase agreements.
Agreement Date: Your finance agreement must have been entered into between 6 April 2007 and 1 November 2024. This encompasses an 18-year window capturing most of the period during which discretionary commissions were common practice. If you financed a car before April 2007 or after November 2024, you fall outside the scheme’s scope.
Vehicle Type: The scheme covers cars, vans, motorcycles, and campervans. Notably, caravans are excluded from the motor finance scheme. The vehicle must have been intended for personal use or, in certain cases, as a sole trader or small partnership with a loan under £25,000.
Current Status: Here’s important news: you don’t need to still own the car or even still be paying off the finance to claim compensation. If you’ve already repaid the finance in full, you remain eligible. If you no longer own the vehicle or it was repossessed, you can still claim. This removes a significant barrier that might otherwise prevent people from accessing compensation.
Deceased Borrowers: The scheme also covers customers who have since passed away. Beneficiaries and executors of their estates can make claims on behalf of deceased individuals, ensuring their families aren’t unfairly excluded.
The Role of Discretionary Commission Arrangements
Understanding discretionary commission arrangements is essential to grasping why this compensation scheme exists. A DCA is when a lender pays the car dealer commission based on the interest rate charged in the finance agreement, with the dealership able to set or adjust that interest rate. The higher the interest rate, the more commission the dealership receives.
This structure creates a fundamental conflict of interest. From the customer’s perspective, they want the lowest possible interest rate. From the dealership’s perspective, once they know a commission structure rewards them for higher rates, they have financial motivation to increase those rates. These competing interests were rarely adequately disclosed to customers.
Before the FCA’s 2021 ban on DCAs, this system was widespread. Dealerships weren’t explicitly lying about interest rates. Instead, they were simply failing to disclose that they could benefit from offering customers worse rates than the customer might have secured independently. Many customers were never informed that the interest rate they received was influenced by dealership incentives rather than purely reflecting their creditworthiness or market conditions.
The FCA now recognises that this represents an unfair relationship between lender and borrower within the meaning of the Consumer Credit Act. Even if individual interest rates might have been technically available elsewhere, the combination of not disclosing the commission’s existence and the dealership’s ability to inflate rates based on that commission makes the relationship unfair.
How the FCA’s Compensation Scheme Will Work
The Financial Conduct Authority has designed a comprehensive compensation scheme that aims to be accessible without requiring customers to hire expensive claims management companies. Understanding how the scheme operates is crucial for planning your next steps.
The Consultation and Timeline: The FCA launched formal consultation on the scheme on 7 October 2025. Originally scheduled to close on 18 November 2025, the deadline has been extended to 12 December 2025 to allow additional stakeholder feedback. The regulator expects to publish final rules and detailed guidance in early 2026, with the compensation scheme itself commencing in early 2026 as well.
How Compensation Begins: Once the scheme launches, payments are expected to begin in 2026, though specific months haven’t been confirmed. For those who have already complained to their lenders about commission, lenders will be required to contact them within three months of the scheme’s start date. Those contact letters will explain how to join the scheme and claim compensation.
For customers who haven’t yet complained, lenders will attempt to identify potentially eligible customers from their records and contact them within six months of the scheme’s start date, asking if they would like to opt in.
The Timeline for Processing: Once contacted, eligible customers have varying amounts of time depending on their situation. Those who previously complained have one month to respond and join the scheme. Those who haven’t complained have six months from being contacted to opt in.
After a customer joins, lenders must determine whether compensation is owed and calculate the amount within three months. Customers then have one month to consider the offer and object if they believe the calculation is incorrect. If no objection is raised, compensation must be paid within one month of the deadline to object.
The Calculation Method: The scheme uses tiered calculations depending on the severity of the unfairness. In the most extreme cases—similar to Marcus Johnson’s situation with a 25 percent commission—customers receive a refund of the entire commission plus interest calculated at the Bank of England base rate plus 1 percent from the date of overpayment until compensation is paid.
In the majority of cases, compensation is calculated as an average of the overpayment amount and the commission paid, also with interest added at the base rate plus 1 percent. This methodology balances acknowledging that dealerships typically need some commission to provide the finance service whilst also compensating customers for arrangements that lacked transparency and created conflicts of interest.
Interest on Compensation: The interest component is calculated more generously than was available in previous schemes like Payment Protection Insurance. Rather than using a fixed rate, compensation includes interest based on the Bank of England base rate plus 1 percent for the entire period from when the customer made the overpayment (the agreement start date) through to when compensation is actually paid. This can add substantial amounts to the basic compensation figure, particularly for agreements that began many years ago.
What You Should Do Right Now: Taking Action Before the Scheme Launches
While the FCA’s compensation scheme will automatically reach out to many customers, experts strongly recommend taking proactive steps rather than waiting passively. Money saving expert Martin Lewis has been particularly vocal about this recommendation, and the FCA itself has agreed with this approach.
Make a DIY Complaint Now: The key recommendation is to submit a free complaint directly to your car finance lender without using a claims management company. Martin Lewis’s Money Saving Expert website has launched a free tool to help with this process, making it straightforward to lodge a complaint yourself.
Why should you do this now rather than wait? The primary reason is practical. If the lender already has you marked down as someone who has complained, you’ll be processed through the faster “opt-out” track. This means you’ll be contacted within three months and could receive compensation within nine months of the scheme’s start date. Those who haven’t complained will be on the slower “opt-in” track, potentially waiting up to 12 months or longer, particularly if their contact details have changed or the lender’s records are incomplete.
Additionally, making a complaint now creates a record with the lender and with the Financial Ombudsman if necessary. This documentation strengthens your position and means any compensation won’t depend on the lender successfully locating you years later.
Finding Your Lender: If you’re unsure which finance company provided your car finance, there are several ways to find out. Check any old paperwork from your car purchase, including finance agreements or correspondence. The dealership where you bought the car should have records of which lender they arranged finance with. Alternatively, contact Citizens Advice, which offers guidance on identifying your lender.
Avoiding Claims Management Companies: This is critical. The FCA has explicitly stated that you do not need a claims management company (CMC) or law firm to participate in the compensation scheme. These companies are actively marketing their services to potential claimants, often creating a false sense of urgency or necessity.
Using a CMC typically costs between 15 and 36 percent of any compensation received in fees. This means a £700 average payment could be reduced to £448 or less after CMC fees. When compensation is meant to restore what was taken from you through unfair practices, handing a third of it to a middleman makes little financial sense. The FCA’s scheme is specifically designed to be free and accessible without intermediaries.
Be wary of any company claiming they need upfront fees or that you must act immediately through their service. Legitimate claims can be made directly to lenders without any third party involvement.
The Latest Developments and Industry Response
The car finance compensation story continues to evolve. In November 2025, further developments have emerged that affect the scheme’s implementation. The Financial Conduct Authority extended the deadline for industry feedback on its consultation from 18 November to 12 December 2025, providing additional time for lenders, consumer groups, and other stakeholders to submit detailed responses.
Simultaneously, motor finance lenders have raised concerns about the proposed scheme. Lloyds Banking Group’s Chief Executive Charlie Nunn told a parliamentary committee that the compensation scheme would “take away 20 years of profitability off the car finance industry.” Separately, FirstRand, which was central to the Supreme Court case, indicated it may need to increase its provision beyond the £2.7 billion it had already set aside, suggesting the actual costs could exceed initial estimates.
Interestingly, some industry sources have reportedly approached the government about limiting the scheme to agreements after 2014, which would exclude the oldest cases. The FCA has firmly rejected suggestions that it lacks legal authority for the scheme, stating in November 2025: “We are satisfied we have the powers to implement the scheme we are consulting on. Complaints about agreements dating back to 2007 have been paused, under our powers, for nearly two years and now need to be dealt with fairly.”
This regulatory confidence suggests the scheme will proceed as proposed, covering the full 18-year period from 2007 to 2024, despite industry pressure to narrow its scope.
Real Cases: What Actually Happened to Real Customers
Examining actual cases helps illustrate why the compensation scheme is necessary and what constitutes “unfair” treatment under the law. Several cases have worked through the court system, setting precedents for the broader scheme.
Marcus Johnson’s Case: Johnson purchased a Suzuki Swift in 2017 through FirstRand Bank finance. The dealership received a commission of £1,650.95—fully 25 percent of the total loan amount. Johnson was not informed about this commission or how it inflated his interest rate. The Supreme Court found the relationship unfair and ordered FirstRand to repay the full commission plus interest, establishing the legal foundation for the broader scheme.
Miss W’s BMW Claim: Miss W purchased a BMW and financed it with Alphera Financial Services through a dealership. The dealership received a commission that created an incentive to inflate the interest rate without proper disclosure. When Miss W’s case reached County Court, the judge found the relationship unfair under the Consumer Credit Act. Alphera was ordered to repay a commission of £1,351.99 plus £93.79 in interest calculated over 1,266 days.
Mrs J’s Corsa Deal: Mrs J traded in her existing Corsa to Arnold Clark but the dealership presented a PCP finance deal from Alphera for a new vehicle. The deal required her to borrow just over £15,000 at monthly payments exceeding £285 with a final balloon payment approaching £6,000. The dealership received commission based on the interest rate charged. Mrs J’s case highlights how commissions affected the overall affordability and structure of finance deals, often with limited transparency about how the commission influenced the terms.
Mr P’s Success Against Evans Halshaw: Mr P instructed Bott and Co solicitors to pursue a claim against Evans Halshaw dealership and lender Alphera. The case went to trial, where the judge found that both Evans Halshaw and Alphera failed to disclose the substantial commission payment and the conflict of interest it created. The dealer’s terms incentivised inflating interest rates, and the judge concluded the relationship was unfair.
These cases demonstrate that unfairness wasn’t always about explicit deception. Instead, it involved systematically failing to disclose commission arrangements and the conflicts of interest they created, allowing customers to believe they were receiving quotes based on standard lending criteria when in fact dealership commission incentives were influencing those quotes.
Frequently Asked Questions About Car Finance Compensation
Can I claim if I’ve already paid off my car finance? Yes, absolutely. One significant benefit of the compensation scheme is that you don’t need to currently be paying off the agreement to be eligible. If you’ve fully repaid your car finance, you remain eligible for compensation based on how much you overpaid during the agreement period. This removes a major barrier that affected many customers.
What if I no longer own the car? Ownership status is irrelevant to your eligibility. Whether you sold the car years ago, it was repossessed, or you still drive it today, you can claim compensation. The claim concerns unfairness in the finance agreement itself, not the status of the vehicle.
How much compensation will I receive? The average compensation is expected to be approximately £700 per agreement. However, this is an average, meaning some customers will receive more and others less. The amount depends on factors including the size of the commission, how poorly it was disclosed, and whether other unfair practices occurred. The FCA will use a tiered calculation methodology, with the most extreme cases potentially receiving significantly more than £700.
Do I need to use a claims management company? No. The FCA has explicitly confirmed that you do not need CMCs or law firms to participate in the compensation scheme. These services cost between 15 and 36 percent of compensation in fees, making them poor value when the scheme is free and accessible to everyone. Making a DIY complaint costs nothing.
What happens if I’ve already complained? You don’t need to take any further action immediately. Your lender has records showing you’ve already complained, so you’ll automatically be included when the scheme launches. You’ll be contacted within three months of the scheme starting and could receive compensation within nine months. You may need to confirm you wish to participate when the lender contacts you.
Can I claim if the car was financed on my partner’s behalf? You can claim if you were the customer in the original agreement. If your partner took out the finance but you’re now seeking compensation, you would need to be a beneficiary of their estate or have specific legal authority to act on their behalf. Alternatively, your partner should make the claim themselves.
Will compensation be reduced by any ongoing payments I’m making? Once you’ve entered into the compensation scheme and your eligibility is determined, ongoing payments continue as normal. Compensation represents restitution for overpayment through unfair commission arrangements, not a reduction in your remaining balance. However, check with your lender for specific details about how compensation and ongoing payments interact.
What if I can’t find my old paperwork? You don’t need original documents to make a claim. Lenders have their own records of all finance agreements. When you make a complaint, provide whatever information you do have—your name, the approximate date of finance, the dealership, and vehicle details. Lenders can identify your agreement from these details without requiring you to produce original documents.
Am I protected if I claim through the scheme? Yes. The compensation scheme is regulated by the FCA and operates according to specific rules about how eligibility is determined and compensation is calculated. If you’re unhappy with the outcome, you can escalate your complaint to the Financial Ombudsman, which will independently assess whether the scheme’s decision was correct. This protection applies to everyone using the scheme at no cost.
Important Reminders: Protecting Yourself from Scams and Unnecessary Costs
As the compensation scheme moves closer to launch, scammers and aggressive marketing are inevitable. Protecting yourself requires awareness of common tactics used to exploit eligible customers.
Watch Out for Upfront Fees: No legitimate compensation process requires upfront payments from customers. If anyone asks you to pay money immediately to “secure” your claim or “expedite” the process, that’s a major red flag. Legitimate claims can be submitted free of charge directly to lenders or through regulated intermediaries who only take fees from compensation received.
Be Skeptical of Urgency: Claims management companies and other services create artificial urgency, suggesting deadlines are approaching or opportunities will close. In reality, the FCA has confirmed that customers have until at least July 2026 to bring complaints to the Financial Ombudsman. There’s no need to rush into expensive arrangements today.
Check Regulatory Status: Before engaging any service offering to help with your claim, check whether they’re regulated by the FCA. You can use the FCA’s register at register.fca.org.uk. Claims management companies are regulated, but they’re often more expensive than necessary. Law firms are regulated separately. If a company isn’t on any register, avoid them entirely.
Keep Documentation: If you do engage any service to help with your claim, ensure you receive clear written documentation explaining exactly what they’ll do, how much they’ll charge, and whether fees are only taken from compensation received. Never sign blank forms or agreements with terms you don’t fully understand.
Direct Complaints Are Free: Remember that you can always make a free complaint directly to your lender without any intermediary. Use resources like Money Saving Expert’s free tool or Citizens Advice for guidance on doing this yourself.
Looking Forward: What Happens After the Scheme Launches
The compensation scheme represents a genuine attempt to address systemic unfairness that affected millions of British drivers over nearly two decades. Once the FCA publishes final rules in early 2026, implementation will follow relatively quickly. Initial payments could reach customers as early as mid-2026, though for those who haven’t yet complained, the process may take longer.
The scheme’s success will be measured not just by how much compensation is paid, but by how well it reaches people who were harmed. Lenders will actively contact complainants, but some customers—particularly those who have moved house, changed their names, or moved abroad—may be harder to reach. This is why proactive complaints made now are valuable. They ensure you’re marked in the system and won’t miss out if contact information becomes stale.
This compensation scheme also represents a turning point for the motor finance industry. The ban on discretionary commissions came into effect in 2021, so no new agreements with this structure are being created. As the scheme processes historical cases, it will establish clear precedent about what constitutes unfair practices and what compensation is appropriate. This should discourage similar practices across other financial products and sectors going forward.
The fact that this scheme exists at all reflects the power of individual customers taking action. Marcus Johnson didn’t accept FirstRand’s initial response to his complaint. He pursued his case through the courts, ultimately reaching the Supreme Court. His persistence established the legal foundation that underpins the entire £8 billion compensation scheme. This demonstrates that individual complaints matter and can drive systemic change.
For more UK focused stories and trending news, check these out:
- Crystal Explorers UK Trend 2025
- CSE Timetable 2025
- Brean Holiday Park Expansion Plans
- Golden Ticket
- BBC News
- UK Government Official Site
Conclusion: Taking Control of Your Financial Future
If you financed a car between 2007 and 2024, the compensation scheme represents a genuine opportunity to recover money that was unfairly taken from you through non-transparent commission arrangements. Whether that money will actually reach your bank account depends significantly on the action you take now.
The most important step is simple: make a free complaint to your car finance lender if you haven’t already. This takes you into the faster processing track when the scheme launches, potentially accelerating your compensation by six months or more. It costs nothing, requires no intermediary, and removes the risk that you’ll be missed by the lender’s outreach efforts.
Avoid the temptation to engage claims management companies promising faster processing or guaranteed outcomes. The compensation scheme is free, and using paid intermediaries only reduces your ultimate payout without providing meaningful benefits over making a direct complaint.
As the scheme develops through early 2026 and compensation payments begin later in the year, stay informed about progress. The FCA’s website will provide detailed guidance about how to participate, what you need to do, and when you can expect payments. Financial journalists and consumer groups will also continue to provide updates on how the scheme is operating and what results are being achieved.
The car finance compensation scandal represents one of the most significant failures of consumer protection in modern UK financial services. Millions of customers were treated unfairly through systematically opaque practices that prioritised lender and dealership profits over customer interests. The compensation scheme, whilst imperfect, represents a genuine attempt to make this right. By understanding how it works and taking appropriate action, you can ensure you receive the compensation you deserve.
Leave a Reply