All you need to know about car finance compo

Chances are you’ve heard about car finance and a new compensation scheme for people who may have been mis-sold credit to buy a vehicle.

You may have been fleeced when taking out a car loan agreement (Picture: Adobe)

By the look of my postbag many readers are utterly flummoxed about what the announcement means, how it works and if they are entitled to compensation. That sounds like my cue for a simple guide to your rights…!

What are the key things that I need to know?

The Financial Conduct Authority (FCA) has announced proposals for a compensation scheme for millions of drivers who may have been mis-sold deals to buy a car or vehicle on finance

The main things to remember are:

• You need to have been sold a motor finance agreement taken out between 06 April 2007 and 01 November 2024.
• The compensation scheme only applies if you were sold an unfair contract, given inaccurate information or excessive commission was paid by the lender to the broker,
• It’s estimated that the scheme will apply to just under half of people (44%) who were sold policies during this period.
• The FCA estimates that up to 14.2 million people are affected.
• Lenders could pay out £8.2billion in compensation.
• The average payout is predicted to be £700 – but that sum will very much vary depending on the circumstances.

Bear in mind these are proposals. We’ll know for sure what’s happening in early 2026.

What’s the problem with car and vehicle finance?

If you’ve bought a car or vehicle in the past decade, chances are you’ve taken out a Personal Contract Plan (PCP).

These finance agreements are ludicrously complicated and many featured large ‘hidden’ commission payments.

You don’t need to know how all of this works to claim. But these are the agreements under scrutiny:

Discretionary commission arrangements, which allowed the seller to adjust your interest rate to obtain a higher commission.

High commission arrangements, where the amount of commission was so high it was deeply unfair. The FCA has suggest a limit of 35% of the total cost of credit and 10% of the loan.

‘Tied’ agreements, where the lender and broker had a financial agreement to exclusively or mostly sell credit with specific lenders.

How do I claim?

I spoke to my fellow Rip Off Britain expert, Alex Neill, for her tips on complaining about car finance. Alex says:

If you’re one of the four million people who’ve already complained, you’ll be contacted first once the scheme starts. You will be automatically included, unless you contact the lender to say otherwise. If they don’t respond within one month, lenders must review their cases automatically.

Those who haven’t complained will be contacted within six months of the scheme launch and asked if they wish to opt in. You’ll then have six months to decide.

Uncontacted consumers – for example, if lenders no longer hold their contact details – will have 12 months to make a claim directly.

If consumers disagree with their lender’s decision, they can take their case to the Financial Ombudsman Service.

Other things to bear in mind

If you’ve not been contacted, now is the time to start digging around in the back of your drawers to find your old agreements. If you are struggling to find them, your credit reference report may list old deals and bank statements could help you figure out who the lenders were.

If you’ve already been compensated, or the Financial Ombudsman or lender rejected your claim, you should be contacted if you are entitled to further compensation.

You can find out information, get updates and download template letters on free websites like Consumer Voice and MoneySavingExpert.

Do I need to use claims management companies and solicitor firms?

Claims management companies or CMCs are firms that will bring complaints or claims on your behalf for a fee. You do not need to use them to claim compensation. You’re throwing your money away.

If you already have and you feel you were misled, then make a complaint. There’s also the free Claims Management Ombudsman you can contact if you’re unhappy, click on this link.

Martyn James is a leading consumer rights campaigner, TV and radio broadcaster and journalist. For more articles from Martyn , click on this link