UK Car Finance: Millions Face Redress Over Mis-selling

UK regulators have launched a nationwide redress scheme for consumers who may have taken out car finance on unfair terms, with the Financial Conduct Authority (FCA) estimating around 12 million people could fall within the scope. The FCA said the framework covers agreements signed between April 2007 and November 2024 and is intended to deliver compensation to eligible customers.

The FCA linked the scheme to commission practices in which car dealers earned money from lenders in a way that depended on the interest rate charged to the customer. Officials said customers were not informed about these arrangements. The regulator said it concluded the structure created incentives for higher interest rates, which could mean borrowers paid more than they should have.

The redress programme follows the FCA’s 2021 ban on discretionary commission arrangements (DCAs). Under the arrangements at issue, dealers could benefit when the interest rate was set higher, increasing the overall cost of credit for the borrower. The FCA said the new scheme is designed to compensate people affected by these incentives during the period covered.

Eligibility is not limited to undisclosed DCAs. The FCA said compensation may also apply to “high commission arrangements,” which it defined as cases where at least 39% of the total credit cost and 10% of the loan went to the dealer. The scheme also includes situations involving contractual links that gave lenders exclusivity or a right of first refusal.

For consumers, the FCA’s guidance is to submit claims directly to the lender named in the finance agreement. The regulator said the process is free and discouraged the use of claims management companies or legal services, noting that such firms often take a share of any compensation paid. The FCA estimated an average payout of £829 per eligible claimant.

The FCA also updated its estimate of the number of potentially eligible people, revising the figure down from an earlier 14 million to around 12 million. Industry and consumer groups responded differently: the Finance and Leasing Association (FLA) criticised the approach as too wide in scope, while consumer rights groups said the measures still do not go far enough.

Uncertainties remain around how many consumers will submit claims and how quickly lenders will process them under the new framework. The FCA’s guidance sets out who may qualify, but outcomes will depend on the details of individual agreements and how the claims process is implemented across lenders.