Redress scheme: Car finance mis-selling victims could receive automatic compensation

Firms guilty of miss-selling car finance may need to compensate affected customers even if they haven't made a complaint after the Financial Conduct Authority (FCA) said it's likely to consult on a redress scheme. A redress scheme puts the onus on firms to find and compensate all customers who may have been affected.

A statement from the FCA said: "We want to provide as much certainty as possible to firms, consumers and stakeholders.

"So, we are confirming that if, taking into account the Supreme Court's decision, we conclude motor finance customers have lost out from widespread failings by firms, then it's likely we will consult on an industry-wide redress scheme." 

The FCA also confirmed that the redress scheme would include a set of rules that firms must follow in awarding compensation, as well as checks to ensure that the process is followed properly.

Redress schemes, like the one proposed by the FCA, make it simpler for customers to receive the compensation that is due. It means customers wouldn't need to raise a claim themselves and would negate any need to use a third-party claims management firm which would take a cut of the compensation, meaning they would get to keep all of the compensation they are owed.

Which car finance miss-selling cases will fall under the redress scheme?

The car finance miss-selling cases covered by the redress scheme will likely depend on the outcome of the case put before the Supreme Court. To help you understand which cases might qualify, we've provided some context into the car finance mis-selling scandal below.

Cars sold under Discretionary Commission Agreements

The FCA is currently reviewing car finance deals involving discretionary commission arrangements (DCAs). DCAs allowed car dealers (acting as brokers) to set the interest rate on car finance agreements. Brokers were incentivised to offer higher interest rates as they would often receive higher commissions in return. Customers were not informed this was the case.

While DCAs were outlawed in 2021, the Financial Omudsman was contacted by thousands of people who believed they'd been treated unfairly prompting the FCA to launch its own investigation back in January 2024. This review is still ongoing and DCAs will likely be part of the redress scheme if the FCA finds that motor finance customers have lost out. You can find out if you're likely to be eligible for DCA car finance misselling compensation in our article on the topic.

DCAs are only one part of the equation, however.

Cars sold where commissions were not appropriately disclosed

A surprise Court of Appeal judgement last year saw several car finance companies halt operations as new requirements on commission disclosures were announced.

The Court found that it's not sufficient to state a broker is receiving commission for arranging a car finance deal. Instead, the nature of the commission, as well as the amount of the commission, may need to be disclosed too.

This was an unexpected judgment that forced several car finance companies to halt operations as they worked to review their processes to ensure they meet the new requirements. The case was subsequently referred to the Supreme Court.

The FCA has made its own submission; however, it is waiting for the Supreme Court's decision before it decides whether motor finance customers have lost out from widespread failings by firms. If the Supreme Court upholds the judgment by the Court of Appeal, then both DCA cases and cases involving commissions that were not appropriately disclosed may be compensated under the redress scheme.

When will the FCA make its decision on the redress scheme?

The FCA will confirm whether it'll go ahead with its redress scheme within six weeks of the Supreme Court's decision. At the same time, it will also confirm how the redress scheme is likely to work.

The Supreme Court will hear an appeal against the judgment made by the Court of Appeal between the 1st of April and the 3rd of April. However, it can then take several weeks for the Supreme Court to come to a decision as there's no set timeframe.

FCA car finance mis-selling redress scheme: What should you do next?

Despite the prospect of a redress scheme, the FCA is still advising customers to raise complaints if they weren't told about a commission and believe they've paid too much for their car finance.

Therefore, you can raise a complaint about DCAs as well as other types of commissions as both may be due compensation depending on the decision by the Supreme Court. You don't need to use a claims management company to do this as it's a straightforward process and claims management companies usually take a cut.

Your first port of call for any complaints should be the lender or broker that arranged your deal. You should include as much information as possible in your complaint to help the provider find your loan. This can include things like your policy number, the date of the agreement, the vehicle number plate and your address at the time when you took out the agreement.

You should then receive an acknowledgement of the complaint within 8 weeks of sending it. Bear in mind, however, that due to the volume of complaints car finance providers are receiving, the FCA has extended the usual deadline by which you should receive a final response. Car finance companies now don't need to issue final responses until after December 4, 2025.

If you're still unsatisfied with the response you can then refer the case to the Ombudsman. This is how the process works as of now. It may change if a redress scheme is launched, but it's a good idea to log your complaint anyway so that there's a record and you've initiated the process.

If you've already complained about a DCA, the FCA has a tool that outlines your next steps and what to expect depending on how and when you've complained.

You can also sign up for FCA car finance complaints updates via the official website. You will then be kept up to date about future decisions regarding the redress scheme and any other developments that take place.