The motor finance scandal: what happened, and what it means for you

When you bought a car on finance, the dealer arranging your agreement didn't just sell you the car. In most cases, they also received a commission from the lender — a payment for introducing you to the finance product.

The problem was how that commission was calculated. Under arrangements known as Discretionary Commission Arrangements (DCAs), dealers were given the power to set or increase your interest rate within a range set by the lender. The higher they set your rate, the larger their commission.

In other words: the dealer had a direct financial incentive to charge you more, and they were not required to tell you. Most didn't.

This created a clear conflict of interest. The person arranging your finance was simultaneously acting as your adviser and profiting from making your deal more expensive. The FCA banned DCAs in January 2021 after finding widespread evidence of consumer harm.

DCAs were not an occasional or isolated practice. They were a standard feature of the motor finance market for over a decade.

The FCA has now confirmed that approximately 12.1 million finance agreements fall within the scope of the redress scheme, roughly 40% of all motor finance written since 2007. Total redress payments to consumers are expected to reach £7.5 billion, making this one of the most significant consumer finance compensation exercises since PPI.

Major lenders including Black Horse (Lloyds Banking Group), Close Brothers Motor Finance, Santander Consumer Finance, MotoNovo Finance, and Barclays Partner Finance were all operating DCA-based commission models during this period.

Court of Appeal: October 2024

In October 2024, the Court of Appeal ruled broadly in favour of consumers in three linked cases: Johnson v FirstRand Bank, Wrench v FirstRand Bank, and Hopcraft v Close Brothers. It found that undisclosed commission arrangements could give rise to legal claims, going further than expected by extending this principle beyond DCAs to almost all undisclosed commission arrangements.

Supreme Court: 1 August 2025

Lenders appealed to the Supreme Court. On 1 August 2025, the Supreme Court handed down its judgment ([2025] UKSC 33). The ruling narrowed the scope compared to the Court of Appeal, but confirmed a clear and viable legal route for many consumers.

The key findings:

• Dealers do not owe fiduciary duties to consumers. This closed off the broad commission disclosure route from the Court of Appeal.
• The unfair relationship route under the Consumer Credit Act 1974 is confirmed. Where a DCA was not properly disclosed, and particularly where the commission was high relative to the total cost of credit, the relationship between lender and borrower can be found unfair, entitling the consumer to compensation.
• In the lead case (Johnson), the lender was ordered to pay back the full commission (£1,650.95 plus interest). The commission had represented 55% of the total cost of credit and had not been disclosed.

Following the Supreme Court judgment, the FCA moved quickly.

Two separate schemes

The FCA has structured redress as two schemes:

Who is eligible?

You will be considered for compensation if your agreement falls within those dates and at least one of the following applies:

• A Discretionary Commission Arrangement (DCA) was in place and was not properly disclosed
• The commission paid to the dealer amounted to at least 39% of the total cost of credit and 10% of the loan, and was not properly disclosed
• There was a contractual tie giving the lender exclusivity or right of first refusal, not made apparent to you

How is compensation calculated?

For most consumers, compensation is calculated using a hybrid remedy: an average of two approaches, one based on the commission paid and one based on the difference between the rate charged and a fair rate. Interest is added on top.

A smaller group of approximately 90,000 consumers will receive the full commission repayment plus interest. Around 1 in 3 cases will be capped.

The interest rate change

The final scheme sets compensatory interest at the Bank of England base rate plus 1%, with a minimum floor of 3% in any year. This is the primary reason the confirmed average payout of £829 is above the earlier estimate of around £700.

If you have already complained

You are in the better position. Lenders must respond to existing complainants within three months of each scheme's implementation deadline. Eligible post-2014 complainants should hear back by September 2026; pre-2014 complainants by November 2026.

If you haven't complained yet

Lenders are required to proactively identify and contact consumers who appear to be owed money, but they have six months from the implementation deadline to do so. That means some consumers may not be contacted until late 2026 or into 2027.

If you are not contacted but believe you may be affected, you can still complain directly to your lender until 31 August 2027.