Car finance claims have become the latest battleground in Britain’s long-running saga of consumer mis-selling scandals. What began as a technical investigation into commission structures has evolved into one of the most significant potential redress exercises since PPI, and 2026 is shaping up to be a decisive year.
Millions of drivers who bought cars on finance over the past decade may have been overcharged. At the heart of the issue is how lenders and dealerships structured commission, how transparently those costs were disclosed, and whether some agreements created what the law calls an “unfair relationship” between borrower and lender.
Why car finance is under scrutiny
Most new and many used cars in the UK are bought using finance agreements, typically Personal Contract Purchase (PCP) or Hire Purchase (HP). For years, many of these deals involved commission payments from lenders to car dealers or brokers.
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SubscribeIn particular, Discretionary Commission Arrangements (DCAs) allowed dealers to increase the interest rate charged to customers. The higher the rate, the more commission the dealer earns. These arrangements were banned by the Financial Conduct Authority (FCA) in January 2021, but millions of agreements were written before the ban.
Drivers who took out car finance before 2021 may have been charged inflated interest without realising the dealer had discretion to set the rate. The FCA has since confirmed it is investigating whether widespread consumer harm occurred, and it is consulting on a potential industry-wide redress scheme.
But DCAs are only part of the story.
The three main types of claim
Legal and regulatory developments over the past 18 months have broadened the scope of potential claims beyond discretionary commission alone.
1. Discretionary commission claims (pre-January 2021)
These relate to agreements where the dealer could adjust the interest rate and earn more commission as a result. Under the FCA’s proposed redress scheme, firms would identify affected customers and calculate compensation using a standard methodology.
However, compensation can vary significantly depending on how interest differences and compensatory interest are calculated. Some campaigners argue that standardised calculations may not always reflect the full cost paid over the life of the agreement.
2. Excessively high interest and “unfair relationship” claims (up to 2024)
In August 2025, the Supreme Court clarified how courts should assess fairness under section 140A of the Consumer Credit Act. In that case, commission levels were compared to both the amount borrowed and the total charge for credit, and were found to be substantial, equating to 25% of the advance and 55% of the total charge for credit.
This ruling matters because it opened the door to claims even where a discretionary commission model cannot be shown. Instead, courts can examine the overall cost of the finance, transparency, and the relationship as a whole.
These claims can apply to agreements taken out as recently as 2024, significantly widening the pool of potentially affected borrowers.
3. Single-lender or restricted-panel claims (up to 2024)
Another key issue is whether dealers gave customers the impression they were shopping the market when, in reality, they were offering finance from a single lender or a limited panel. The Supreme Court confirmed that this could contribute to an unfair relationship, particularly if cheaper alternatives were realistically available.
Many consumers assumed dealers were comparing multiple options on their behalf. If that assumption was misplaced and not properly disclosed, compensation could follow.
The FCA’s proposed redress scheme
The FCA has proposed an industry-wide redress scheme designed to compensate large numbers of consumers efficiently. Under this approach, firms would:
- Identify affected agreements
- Apply a standardised compensation formula
- Issue offers directly to consumers
The attraction is simplicity. Consumers would not need to lodge complex complaints or go to court. The FCA has signalled that, if implemented, the scheme could deliver consistency and speed across millions of agreements.
As of early 2026, the regulator is expected to provide further clarity on the structure and timing of the scheme. Consultation responses have focused heavily on how compensation should be calculated, particularly whether a flat methodology can fairly capture individual circumstances.
Industry analysts suggest that, if approved, payouts could begin later in 2026, though precise dates depend on final FCA rules and potential legal challenges.
Individual complaints and court action
Alongside the regulatory route, consumers can pursue individual claims. This is done either directly to lenders, through the Financial Ombudsman Service (FOS), or via court proceedings.
Some claims management companies (CMCs) and law firms argue that the FCA’s standardised approach may undervalue certain agreements, particularly where:
- Multiple issues apply to the same finance deal
- Commission levels were unusually high
- Restricted broking and commission overlap
- Early settlement calculations magnified losses
Representation can involve building a detailed complaint, scrutinising commission disclosures, challenging lender calculations, and escalating disputes if necessary.
However, CMCs typically charge a percentage of any compensation recovered, meaning consumers must weigh potential uplift against fees.
The controversy over compensation levels
One of the fiercest debates centres on how compensation should be calculated.
Critics of a standardised scheme argue that relying on averages and simplified assumptions risks underestimating the real financial impact on individual borrowers. For example, a small difference in interest rates applied over four or five years can compound into a significant sum.
There are also questions about compensatory interest (the additional 8% statutory interest often added in financial redress cases) and whether it will be applied consistently or conservatively.
On the other hand, regulators are mindful of proportionality. An overly complex system could delay payments for years, especially if every case required forensic recalculation.
What’s happened since January 2026?
Since the start of the year, attention has turned to three developments:
- FCA timetable updates: The regulator has reiterated its intention to finalise its redress framework in 2026, though exact launch dates remain under consultation. Firms have been told to prepare data and provisioning scenarios.
- Lender provisioning: Several major banks and specialist motor finance lenders have increased provisions in their financial results to reflect potential liabilities, signalling that the industry expects significant payouts.
- Claims activity surge: Claims firms report a sharp increase in enquiries following media coverage of the Supreme Court’s 2025 ruling and renewed FCA updates. Even consumers who did not have discretionary commission arrangements are now exploring unfair relationship claims.
Meanwhile, the Financial Ombudsman Service continues to process complaints, though some cases have been paused pending regulatory clarity.
What should drivers do now?
For motorists who took out car finance before January 2021, checking whether a discretionary commission arrangement applied is an obvious first step. For agreements up to 2024, the question may be broader: was the overall cost fair, and was the commission structure clearly explained?
MoneySavingExpert advises drivers to gather key documents, including finance agreements and statements, and consider whether they were told how commission worked. However, if drivers use a claims firm, they may be able to do most of this for the claimant.
The scale of the issue means this is unlikely to fade quietly. If the FCA presses ahead with a redress scheme, 2026 could see one of the largest consumer compensation exercises in UK financial history.
For now, car finance has joined the ranks of PPI and packaged bank accounts, another reminder that how a product is sold can matter just as much as what it costs.
