Historic Compensation Scheme for UK Drivers
On 7 October 2025, the Financial Conduct Authority (FCA) announced one of the largest consumer compensation schemes in UK history. Up to 14.2 million motor finance agreements spanning 17 years have been deemed unfair, potentially entitling millions of drivers to compensation averaging £700 per agreement.
Key Facts at a Glance
- Total Compensation: £8.2 billion (estimated with 85% take-up)
- Eligible Agreements: 14.2 million motor finance contracts
- Average Payment: £700 per agreement
- Scheme Launch: Early 2026
- Complaints Deadline: Extended to 31 July 2026
What Makes a Car Finance Agreement Unfair?
The FCA has identified three key categories of unfair practices that affected millions of British motorists. Your agreement may qualify for compensation if it falls into one or more of these categories:
1. Discretionary Commission Arrangements (DCAs)
This was the most widespread issue. Dealers had the power to increase your interest rate beyond what the finance company initially approved, earning themselves higher commission at your expense. The FCA found no evidence that customers were told about these arrangements.
Impact: Analysis shows that loans with discretionary commission arrangements carried interest rates approximately 17% higher than comparable fixed-fee arrangements. For example, what should have been an 8.3% interest rate was often charged at 10%.
2. Excessive Commission
The FCA has defined "excessive" commission as situations where the commission paid to dealers equalled or exceeded 35% of the total cost of credit and 10% of the loan amount. This particularly affected sub-prime customers who had limited borrowing options.
Had customers known about these exorbitant commissions, they could have negotiated better terms or sought alternative financing.
3. Inadequate Disclosure of Relationships
Many dealers failed to disclose that they had exclusive or near-exclusive relationships with particular lenders. This meant they weren't genuinely shopping around for the best deal on your behalf – they were steering you towards lenders who paid them the highest commissions.
The Legal Precedents
The FCA's compensation scheme follows two landmark court rulings:
- December 2024: The High Court ruled that the Financial Ombudsman was entitled to find dealers and lenders acted unfairly by not adequately disclosing discretionary commission arrangements.
- August 2025: The Supreme Court found a lender acted unlawfully due to high, undisclosed commission and failure to disclose contractual ties between lenders and brokers.
How Will the Compensation Scheme Work?
Who Will Be Contacted?
The FCA places responsibility firmly on lenders to identify and contact eligible customers. Here's the priority order:
- Existing complainants (over 4 million customers) – contacted within 3 months of scheme launch
- Other eligible customers – contacted within 6 months, where lenders can identify them
- Self-identification – customers can contact lenders themselves within 12 months of scheme launch
Compensation Calculation
The scheme proposes a balanced approach to calculating compensation:
- Serious cases (undisclosed contractual tie plus commission ≥50% of total credit cost and 22.5% of loan): Full commission refund plus interest
- Other cases: Average of estimated overpayment and commission paid, plus simple interest
- Interest rate: Bank of England base rate plus 1% annually (estimated average: 2.09%)
Timeline: What Happens Next?
| Date | Event |
|---|---|
| 4 November 2025 | Deadline for industry feedback on complaint handling rules extension |
| 18 November 2025 | Consultation on compensation scheme closes |
| Early 2026 | FCA publishes final rules and scheme launches |
| Before end of 2026 | First compensation payments to customers begin |
| 31 July 2026 | Extended deadline for customers to lodge complaints |
Who Is Excluded from the Scheme?
You cannot participate in the FCA scheme if:
- You've already received compensation for the same issue
- Your case is currently with the Financial Ombudsman Service
- The Ombudsman has already rejected your case
- You've joined a class action or engaged a law firm (withdrawal may be possible but could incur hefty fees)
- Your agreement was a leasing arrangement (different legal framework applies)
Market Impact and Consumer Protection
The FCA has conducted extensive analysis on the scheme's impact on the motor finance market. Key findings include:
- The market will continue to function well with good product availability
- Competition among lenders will remain strong
- Without the scheme, complaint handling costs could be several billion pounds higher
- Consumer confidence in car finance will be restored through transparent practices
What You Should Do Now
If You Had Car Finance Between 2007 and 2024:
- Seek expert advice: Contact specialist solicitors to maximize your compensation potential
- Update your details: Ensure your finance company has your current address and contact information
- Gather documents: Locate any paperwork from your car finance agreements
- Act promptly: Professional representation can expedite your claim
- No win no fee protection: Choose solicitors who offer risk-free representation
If You've Already Complained:
The FCA expects you to be prioritised and receive compensation sooner than those who haven't yet complained. Your lender should contact you within three months of the scheme launching.
Multiple Vehicles? You Can Claim for Each One
Many customers financed multiple vehicles over the years. Good news – you can claim compensation for each mis-sold agreement:
- Each agreement is assessed individually
- Covers cars, vans, and motorcycles
- New and used vehicles both eligible
- Different lenders can be claimed against separately
- Joint agreements may also qualify
Why Choose Prowse Phillips?
Whilst the FCA scheme is designed for direct consumer participation, navigating the process can still be complex. At Prowse Phillips, we offer:
- Expert guidance: Over 40 years of legal experience
- No win, no fee: Zero upfront costs, we only get paid when you do
- Complete support: We handle all communications with lenders
- Maximum compensation: We ensure you receive everything you're entitled to
- Appeals expertise: If your claim is initially rejected, we fight on
Frequently Asked Questions
Do I need to wait for the scheme to launch before claiming?
No. You can submit a complaint to your finance company now. In fact, customers who have already complained are likely to be prioritised and receive compensation faster.
What if I can't find my original car finance paperwork?
Don't worry. Lenders are required to maintain records for at least six years, and in many cases longer. We can make a Subject Access Request on your behalf to obtain your agreement details.
Can I claim if I've already sold or returned the vehicle?
Absolutely. The compensation relates to the mis-selling of the finance agreement, not your current ownership of the vehicle. Whether you kept the car, traded it in, or returned it makes no difference to your eligibility.
Will claiming affect my credit rating?
No. Making a compensation claim for mis-sold car finance will not negatively impact your credit score. You're simply claiming back money you shouldn't have paid in the first place.
The Wider Impact on UK Consumers
This compensation scheme represents a significant victory for consumer rights in the UK. The widespread failures in the motor finance industry have:
- Cost British consumers billions of pounds in overpayments
- Prevented informed decision-making about major purchases
- Created unfair advantages for dealers at consumers' expense
- Undermined trust in the car finance industry
The FCA's decisive action sends a clear message that such practices will not be tolerated, and consumers will be made whole when financial services firms fail in their duties.
Conclusion
The FCA's £8.2 billion compensation scheme represents a landmark moment for UK consumer protection. With 14.2 million potentially eligible agreements and an average payment of £700, this could provide significant financial relief to millions of British drivers who were unfairly treated.
The scheme's launch in early 2026 will mark the beginning of what could be one of the largest consumer redress programmes in British history. Whether you've already complained or are just learning about your potential eligibility, there's still time to ensure you receive the compensation you deserve.
At Prowse Phillips, we're here to guide you through every step of the process, ensuring you receive maximum compensation with minimum stress. Our no win, no fee promise means there's absolutely no risk to you.