Millions of UK car finance customers could be owed compensation due to mis-selling practices similar to PPI. The car finance scandal centres on discretionary commission arrangements (DCAs), which allowed dealers and brokers to increase interest rates on Personal Contract Purchase (PCP) and Hire Purchase (HP) agreements without properly informing consumers. This guide explains who qualifies, how to claim, and what to expect in 2026.
What Is the Car Finance Mis-Selling Scandal?
Between 2007 and January 2021, many UK car finance deals involved discretionary commission arrangements (DCAs). These arrangements allowed brokers and dealers to add a discretionary element to the interest rate on Personal Contract Purchase (PCP) or Hire Purchase (HP) agreements. In practice, this meant that interest rates were inflated so that intermediaries could earn higher commissions—sometimes without the consumer being aware this was happening.
The Financial Conduct Authority (FCA) started investigating these practices in 2024, following a landmark ruling by the Financial Ombudsman Service against Barclays. The ruling found that Barclays had engaged in unfair commission payments, which breached consumer protection laws. The FCA then confirmed that some lenders either broke consumer law or failed to disclose commission details properly to customers.
Estimates suggest that around 40% of car finance deals before January 2021 included DCAs, affecting millions of consumers across the UK. These practices led many consumers to pay more than necessary over the term of their finance agreements, with little or no transparency about why the interest rate was higher than the base rate offered.
The scandal has drawn comparisons to the Payment Protection Insurance (PPI) mis-selling crisis, which resulted in billions of pounds in compensation paid out to consumers. Similar to PPI, many affected customers remain unaware they could reclaim money, despite the FCA setting up a formal scheme to help people claim refunds starting in 2026.
Who Qualifies for Compensation?
If you took out a PCP or HP car finance agreement between 1 April 2007 and 31 January 2021, you may be eligible for compensation.
The FCA’s scheme is designed to cover those who were overcharged due to discretionary commission arrangements or other hidden fees that increased the cost of credit.
This includes agreements for both new and second-hand cars, provided the finance deal was affected by these commission structures. It doesn’t matter whether the vehicle was a personal or business purchase; what counts is the presence of DCAs or similar commission elements in the finance agreement.
The FCA estimates that average payouts will be just over £800, which is higher than earlier predictions of around £700. This reflects the typical amount overcharged due to inflated interest rates linked to DCAs. The total compensation pot is likely to reach hundreds of millions of pounds, making it one of the UK’s biggest consumer redress schemes since PPI.
Despite the scale of the issue, millions of drivers remain unaware they qualify. The FCA and consumer groups are running awareness campaigns throughout 2026 to encourage people to check whether they're owed money and to submit claims.
Step-by-Step Guide to Claiming Your Refund in 2026
1.
Check Your Car Finance Agreement Details
The first step is to locate your car finance agreement paperwork. This document will provide key information such as the start and end dates of the agreement, the type of finance (PCP or HP), the interest rate applied, and the name of the lender or finance company.
If you no longer have the paperwork, don’t worry. You can contact your car dealer or the lender directly to request copies or details of your agreement. For many lenders, customer service teams can provide this information over the phone or via their website.
2. Confirm Eligibility
Check that your finance agreement started between 1 April 2007 and 31 January 2021. This is the eligibility window set by the FCA for claims related to DCAs. If your agreement falls within these dates, there’s a good chance you qualify for compensation.
Also, verify whether your agreement included discretionary commission arrangements. While this may not be explicitly stated, the FCA’s scheme covers most PCP and HP agreements during this period, due to the widespread use of DCAs.
3. Identify Your Lender
One common hurdle is remembering who financed your car. If you can’t recall, check your bank statements for monthly payments to finance companies or dealers. Alternatively, contact the car dealer where you bought the vehicle—they should have records of the lender involved.
Popular lenders involved in the scandal include Barclays, Santander, Black Horse, and Close Brothers. The FCA has published a list of lenders covered by the scheme at Https://www.fca.org.uk/consumers/car-finance-redress-scheme.
4.
Submit a Claim to the FCA Scheme
From early 2026, the FCA will run a centralised claims process. You can submit your claim online via the FCA’s dedicated portal or by post. The FCA website provides detailed instructions and a claim form that you can download.
Basically, when submitting your claim, you’ll need to provide your finance agreement details, lender information, and proof of purchase or payments where possible. The FCA aims to make the process straightforward and free of charge.
5. Await Assessment and Compensation Offer
Once your claim is submitted, the FCA will assess it to determine if you were overcharged due to DCAs or related fees. If your claim is successful, you’ll receive a compensation offer—usually a refund of the overpaid interest plus interest on the compensation amount.
The FCA expects most claims to be settled within a few months. If your claim is rejected, you will receive an explanation and can appeal or seek independent advice.
6.
Accept the Offer and Receive Payment
Frankly, if you accept the compensation offer, the FCA will arrange payment directly to you. Payments are typically made by bank transfer or cheque. The FCA recommends providing up-to-date contact and bank details to avoid delays.
According to FCA estimates, average payouts will be just over £800, though some claims may be higher or lower depending on the amount overcharged and the length of the finance agreement.
Tips for a Smooth Claim Process
- Keep all your car finance paperwork and correspondence in one place to make referencing easier.
- Check your lender’s website or contact their customer service to clarify any uncertainties about your agreement.
- Use the FCA’s official website (Https://www.fca.org.uk) for the most accurate, up-to-date information and to submit your claim securely.
- If you’re unsure about any part of the process, consider seeking free advice from consumer organisations like Citizens Advice or the Money Advice Service.
- Beware of third-party claims companies charging fees; the FCA scheme allows you to claim directly without cost.
Common Mistakes to Avoid
- Missing the eligibility window: Claims are only valid for agreements started between 1 April 2007 and 31 January 2021. Double-check dates before applying.
- Failing to identify the correct lender: Submitting a claim against the wrong company can delay or invalidate your application.
- Not providing enough proof: Lack of finance documents or payment records may complicate claims, so gather as much evidence as possible.
- Using unofficial claims services: Some companies charge fees or provide misleading information. Always use the FCA’s official channels.
- Ignoring correspondence: Respond promptly to any FCA requests for additional information to avoid delays.
If you financed a car in the UK between 2007 and 2021, you might be owed hundreds of pounds due to mis-selling through inflated interest rates linked to discretionary commission arrangements. The FCA’s compensation scheme launching in 2026 offers a straightforward way to reclaim this money. Millions remain unaware, so it’s worth checking your finance agreements and submitting a claim if eligible. The average payout will probably be just over £800, reflecting the widespread nature of this consumer issue.
This article was created with AI assistance.
