Car finance dealer trust broken as compensation nears

65% trusted dealers for the best deal as regulator may force banks to compensate mis-sold car loan customers

Car finance lenders could be forced to contact customers who have been mis-sold car loans to ‘offer appropriate compensation.’

The Financial Conduct Authority gave its strongest indication yet on Tuesday that motor finance customers who thought they were getting the best deal could be compensated for hidden fee-related rip-offs.

The regulator launched an investigation last year into discretionary commission arrangements (DCAs) on car loans issued between 2007 and 2021. 

This is where lenders agreed to pay dealers a higher commission if they arrange for the car buyer to pay a higher rate of interest on their loan. A practice the regulator banned in January 2021.

Car finance customers who lost out because of these commission deals have yet to be compensated.  

Our latest research has found that 65% of car finance customers who took out loans before the ban had trusted their dealer to offer them the best deal. Only 16% of people said they don’t trust them to do this. 

We surveyed 2,042 people who took out at least one car finance loan before 28 January 2021. Most were unaware that their dealer could be receiving commission – only 21% said they were aware of this. 

Six in ten (64%) believed their dealer was only making money on the sale of the car and over half (56%) believed that the interest rate agreed on the loan was based solely on their credit history.

More than half of car buyers (56%) were offered only one car finance deal by their dealer, with 44% stating that the dealer did not consider multiple lenders. A further 25% were unsure whether other loan options had been explored.

Since the regulator launched its review, a Court of Appeal ruling in October has heightened the prospect of widespread liability for motor finance firms over all undisclosed ‘secret’ commissions – not just discretionary commissions. 

Two lenders, Close Brothers and MotoNovo owner FirstRand have challenged the Court of Appeal’s ruling. The Supreme Court is due to hear the appeal next month. The regulator and a body representing the interests of dealers have been granted permission to intervene in the case.

Alex Neill, co-founder of Consumer Voice said:

‘The regulator has given its strongest signal to date that compensation is owed on a widespread scale to UK motorists.

‘But there are still some big questions remaining, including whether all secret commissions deals will be included and what the level of compensation will be.

‘All eyes will now be on the forthcoming Supreme Court case to provide the blueprint for any redress scheme.’

The regulator will make its decision on a compensation scheme with six weeks of a final decision from the Supreme Court.

‘In the meantime we would urge all consumers who are unsure if they had commission applied to their car loan to get in touch with their lender and complain,’ Neill added. See what to do next if you have had a car finance loan. 

Lenders face massive car loan compensation bill

The regulator has estimated that 99% of 32 million motor finance agreements entered into since 2007 involved the payment of commission to credit brokers.

Such commission arrangements have cost consumers hundreds of millions of pounds annually in additional charges for credit. 

The regulator said it will confirm within six weeks of the Supreme Court’s decision whether it will be proposing an ‘industry-wide’ scheme to compensate misled car finance customers.

It confirmed that ‘firms would be responsible for determining whether customers have lost out due to firm’s failings’ and, if they have, they would ‘need to offer appropriate compensation.’

It said it would set the rules for firms and put checks in place to make sure they follow them.

Close Brothers last month said it had put aside £165 million to cover legal costs and possible payouts to consumers affected by the mis-selling scandal. 

Several other banks such as Lloyds, Barclays and Santander have also set aside funds to cover compensation-related bills. The potential compensation bill could run into tens of billions. 

Barclays lost a separate legal challenge against the Financial Ombudsman Service in December over a ruling that it unfairly paid commission to car finance broker Arnold Clark. This was in connection with a dispute arising from one customer’s complaint.

Barclays Partner Finance (trading as Clydesdale Financial Services) has challenged this decision, and a separate appeal will be heard in the Court of Appeal. Consumer Voice has applied to intervene in this case.

Most consumers take car finance deals on the spot

Seven in 10 consumers took the finance deal offered by their dealer on the spot – 41% said they took a deal offered without negotiating and 30% said they negotiated a better price. 

But only 4% said they shopped around to research other options.

Over half (52%) of people taking out car finance loans before the 2021 ban still don’t know whether their dealer received commission from their lender, despite the high profile coverage of this issue.

Many consumers said they would have acted differently if they had known upfront that their car dealer was receiving commission on the deal. 

Seventy-five percent said they would have asked for more information to better understand the deal, while 71% would have compared offers to find a better deal. 

Additionally, 75% said they would have refused to proceed with the deal, and 39% stated they would have walked away entirely.

Only 25% said they would not have acted differently; still taking the deal on the spot.You can also get in touch to share your experience with us if you found out after signing your car finance agreement that commission or fees were applied to your loan.

How likely would you have been to take the following actions if you had known upfront that your car dealer was receiving commission on the deal they arranged for you?

Car finance claims: What should customers do now?

The regulator has made it clear that a redress scheme will be simpler for consumers than filing individual complaints. 

However, a spokesperson stressed that car loan borrowers who suspect they were not informed about commission fees – and may have overpaid – should still take the step of contacting their dealer or lender. 

Acting now could help ensure you’re not left out of pocket. Use our free template letter to help you make your complaint to your lender. 

Consumer Voice research

We conducted an online survey of 2,042 UK adults who had taken out car finance loans arranged by their car dealership. 

People responding to the survey had taken loans between 1 April 2014 and 28 January 2021, which is when the ban on discretionary commission arrangements came into force. The survey was conducted between 10-15 January 2025.

We’ll be uncovering more of our research over the coming month – including what car finance customers want from their dealers.

Consumer Voice is free use, independent and we tell consumers when the companies they buy from have broken the law. We help people easily work out whether they’re entitled to compensation and how to claim. 

Sign up to our newsletter to stay updated on claims that could leave you owed compensation.

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