Car finance compensation: what does the FCA redress scheme mean?

What actually happened?

For many years, car dealers and brokers were able to increase the interest rate on finance agreements in order to earn higher commission from lenders. This practice was known as discretionary commission.

In many cases, customers were not told that commission worked this way, or that the interest rate they were offered could be influenced by how much commission the dealer stood to earn. As a result, people often believed they were receiving a fair and competitive deal, when in reality their interest rate had been increased for the benefit of the broker or dealer.

The Financial Conduct Authority (FCA) banned discretionary commission arrangements in 2021. However, by that point, millions of finance agreements had already been affected. The FCA now estimates that a significant number of car finance deals entered into between 2007 and 2021 involved commission structures that were not properly disclosed, leaving many drivers paying more than they should have—often by hundreds or even thousands of pounds.

The scale of the issue is such that it is now widely regarded as one of the largest consumer finance failings in UK history, frequently compared to the PPI scandal. As a result, the FCA opened a formal investigation, carried out a consultation process, and has now produced a finalised redress scheme intended to compensate affected consumers.

Won’t my lender simply send me my refund?

This is one of the most important things to understand about how the redress scheme works.

Under the scheme, lenders are given a set period of time to begin contacting affected customers, depending on when the finance agreement was taken out. The Financial Conduct Authority (FCA) has also issued guidance and protocols setting out the steps lenders should follow when identifying eligible customers and attempting to locate them.

However, the scheme is not designed to operate as a blanket, automatic refund exercise. Lenders will focus on customers they are able to identify using the information they hold, including those who have already raised complaints, and those whose records clearly indicate they may be owed compensation.

In practice, tracing customers can be more complex than it appears — particularly where agreements were taken out many years ago. Our own research highlights some of the practical challenges: among people who believe they may be entitled to compensation, 57% reported having moved home at least once since taking out their finance, 13% had changed their legal name, and 36% no longer held all of their original finance paperwork. Changes like these can make it more difficult for lenders to successfully match records and make contact, even where appropriate processes are followed.

For that reason, relying solely on being contacted carries some risk. Submitting a complaint now ensures your details are up to date, your position is clearly recorded, and your case is formally within scope of the scheme from the outset.

Why having a lawyer in your corner matters

You can, of course, raise a complaint directly with your lender yourself, and for some people that may be the right approach.

That said, this remains a complex and evolving area of law. Although the FCA’s redress scheme provides a clear framework for compensation, understanding how it applies to your own circumstances can still take careful consideration.

In those situations, legal support can be especially helpful. A specialist lawyer can review how any redress has been calculated, check that all relevant agreements have been identified, and help assess whether your position has been fully considered under the scheme.

There are also practical benefits. Legal teams can assist with locating historic finance agreements, submitting complaints with the correct supporting information, and progressing claims in line with the latest FCA guidance. Where a compensation figure does not appear accurate, a lawyer can help explain what options may be available, including whether it is appropriate to take the matter further to the Financial Ombudsman Service or, in some circumstances, through the courts.

As lawyers specialising in this area, we understand how these finance agreements were structured, how commission arrangements operated in practice, and how outcomes should be assessed. Our role is to ensure that claims are properly reviewed and that clients receive the compensation they are entitled to under the law.

What Slater and Gordon can do for you

We have been supporting clients across the UK with mis‑sold car finance claims for a number of years, and we are continuing to take on new cases now that the FCA’s redress scheme has been confirmed.

If you choose to instruct us, we will deal directly with your lender on your behalf, manage the paperwork, and progress your claim through each stage of the process. Where appropriate, we can also carry out soft credit checks across multiple credit reference agencies to help identify finance agreements you may no longer recall, which can be particularly helpful if you have had several vehicles on finance over the years.

We act on a no win, no fee basis. This means there is nothing to pay upfront. If your claim is successful, we take a pre‑agreed percentage of the compensation recovered. If it is not, you will not owe us anything.

For many people, life is busy. Reviewing historic finance documents, tracking down lender details, submitting complaints and monitoring responses can take time and energy that are hard to find. If you would rather hand that process over to a specialist who understands the scheme and will manage the claim on your behalf, that is exactly what we are here to do.

A word of caution on scams

As the redress scheme rolls out, an increase in unsolicited calls, texts and emails is expected, many of which will claim that you are owed compensation.

Some of these communications may be outright scams, including requests for upfront fees or personal information. Others may come from claims management companies seeking to sign people up quickly. It is important to remember that you are under no obligation to use any third party, and you should not feel pressured into acting immediately.

Legitimate lenders and regulated advisers will not ask for sensitive information out of the blue. If you are unsure about who you are dealing with, the FCA has set up a dedicated motor finance scams helpline to help consumers verify whether an approach is genuine.

Slater and Gordon is a regulated law firm, and any contact from us will be clear, transparent and in line with FCA and SRA requirements.

Are you eligible? Here’s what to do next

If you had car finance at any point between 2007 and 2024, you may be eligible for compensation. This includes finance agreements that have already ended and vehicles you no longer own.

Even if your finance agreement has been paid off, settled early, or related to a car you no longer have, you can still bring a claim. What matters is when the agreement was taken out and how the finance was structured, not whether the vehicle is still in your possession.

If you would like us to help identify any eligible agreements and manage your claim from start to finish, you can contact our car finance team to get started. The process takes just a few minutes, and there is nothing to pay unless your claim is successful.

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