Motorists mis-sold finance set for average £829 payout

Car finance firms that sold through dealers using discretionary commission arrangements and other unfair terms that weren't disclosed to the customer are required by the FCA to compensate customers, after years of individual cases being on hold due to the scale of the practice.

You've probably seen the adverts for legal firms chasing mis-sold car, van and motorbike finance after the unfair practice of hiding commission payments based on the cost of the car finance (including interest) was revealed in January 2024 – and may even have explored a claim yourself only to find that you can't proceed if you filed a complaint with a finance firm after October 26 2024.

The pause was to allow the Financial Conduct Authority (FCA) to fully investigate the scope of the problem and impact on consumers, and to establish a redress scheme rather than individuals having to go through a court process each time. As part of that investigation, a threshold for unfair finance commission was determined and many main dealer schemes were excluded.

The resulting claims and liability remain significant – over 12 million finance agreements may have paid commission based on the interest rate the customer accepted, encouraging dealers to sell a higher rate than the customer could have qualified for. Average settlement for these deals has been determined at £829 per finance agreement and finance firms are required to pay this without the need for claims to go through a legal firm or through the courts.

When will the mis-sold finance redress scheme start paying claims?

There are two groups of agreements covered. The first group covers agreements from 1 April 2014 to 1 November 2024, and has been given an earlier deadline as it is unlikely to face further legal challenges. Earlier claims, for agreements between 1 April 2007 and 31 March 2014, have been determined to have often had more harmful DCA agreements but finance firms have argued that the customer data may not be available – and as such, those agreements have been given a later deadline.

• Claims from 1 April 2014 should have a redress scheme in place by June 2026
• Claims for agreements prior to 1 April. 2014 should have a scheme in place by August 2026

According to the FCA, the extra time customers have been out of pocket, and the generally larger disparity in base interest rate and the interest rate charged to customers via these commission-based arrangements means an average £31 increase in the redress due.

How can I claim for mis-sold car finance?

The whole point of this agreement is that you don't have to go through a legal firm, who will probably take a percentage of your compensation. If you have already complained and the finance provider has confirmed that you were sold finance via a discretionary commission arrangement without disclosure of those terms, they should be in touch with you within three months after the deadlines above.

That means that barring any further legal challenges – which are unlikely for post April 2014 sales – you should receive compensation by September 2026 or November 2026 for earlier agreements.

If you already have a complaint in place and have up to date contact details, firms such as Close Brothers and Motonovo are likely to contact you ahead of the three-month deadline set by the FCA. If you have not already complained and received acknowledgement that you were sold finance under the unfair terms determined by the FCA, a successful complaint should receive a response and settlement quickly once the scheme is operating. So you don't need to wait much longer.

Why were these finance packages considered unfair?

Paying commission for selling finance is a normal practice, and it hasn't always been necessary to disclose that the dealer is being paid for the finance being arranged by them. What has been considered unfair is non-disclosure of the arrangement between the dealer and finance firm, and how that commission payment affects the customer.

The most common scenario is the dealer being able to choose which interest rate offered by the finance firm is offered to the customer when a higher rate would give the dealer a higher commission payment.

However, this is not the only unfair practice covered by the FCA redress scheme. Three unfair arrangements have been identified, any one of which qualifies for redress.

1. A discretionary commission arrangement (DCA), which allowed the broker to adjust the interest rate the customer would pay to obtain a higher commission.
2. A high commission arrangement (at least 39% of the total cost of credit and 10% of the loan).
3. Contractual ties that gave a lender exclusivity or a right of first refusal, except where the lender can prove there were visible links with the manufacturer and dealer.

The third point is why main main-dealer finance packages were excluded from the redress scheme early on.