Car finance compensation update as drivers face possible payouts

Millions of drivers across the UK have been on high alert as a major update unfolds regarding potential compensation for alleged car finance mis-selling.

Now, the Financial Conduct Authority (FCA) has issued an important update in the case. The FCA has been delving into whether consumers were unjustly charged too much owing to so-called “discretionary commission agreements” (DCA).

Under these agreements, brokers and car dealers were allegedly able to hike up interest rates tied to car finance deals in order to earn higher commissions. While a ban on such practices was instated in 2021, the FCA initiated a probe early in 2024 to determine if people had been unknowingly overcharged prior to this change.

Yet, a pivotal court decision might pave the way for a broader demographic of car finance customers – beyond those affected by DCA – to potentially reclaim money. The Court of Appeal declared that customers must be explicitly informed about the commission amount they would be paying on, with their agreement being necessary.

Failure to do so would render the lender’s payment of any commission to the dealer unlawful. The Supreme Court will convene a hearing between April 1 and April 3 to examine appeals lodged by lenders Close Brothers and FirstRand Bank.

And the FCA announced today that it has obtained the right to intervene in this case and has submitted documentation to the Supreme Court in preparation for the proceedings, reports the Mirror. Furthermore, it asserted that if there is evidence that motor finance consumers have suffered financially due to widespread failings, it may propose a consultation on a compensation scheme.

In a statement, the FCA announced: “We are no longer planning a further announcement in May. Instead, we will confirm within 6 weeks of the Supreme Court’s decision if we are proposing a redress scheme and if so, how we will take it forward.

“The Court of Appeal case involved complaints about discretionary and non-discretionary commission arrangements (non-DCAs). Our next steps on non-DCA complaints will also be informed by the outcome of the Supreme Court case.”

As MoneySavingExpert.com, founded by Martin Lewis, advises, those who suspect they may be affected by this issue should submit a complaint without delay. They should direct their complaint to the lender that issued their car finance rather than the broker or car dealership where they purchased their vehicle.

That could ensure potential claimants are safeguarded against any potential retrospective introduction of a deadline for complaints. You might be entitled to compensation if you weren’t informed about commission and may have overpaid for your car finance, or if your car finance agreement included a DCA.

MSE provides a free car finance tool to assist you in lodging a complaint. Car finance lenders are required to respond to complaints by December 4.