The UK car finance scandal has sent shockwaves through the automotive and finance industries, with the average payout now reaching £700 per claim.
This compensation scheme could lead to billions in refunds for consumers who were mis-sold car finance agreements over the past decade. If you purchased a car through a Personal Contract Purchase (PCP) or Hire Purchase (HP) plan between 2010 and 2021, this scandal could directly affect you.
What Is the Car Finance Scandal About?
The car finance scandal revolves around mis-sold car loans where customers were overcharged interest because of hidden commission structures between car dealers and lenders.
In these cases, dealers had the power to increase a customer's interest rate on a car finance deal to earn higher commissions — without the customer’s knowledge. This unethical practice, known as the “discretionary commission model,” allowed dealers to profit from inflated interest rates while customers paid more each month than necessary.
As a result, millions of drivers were unknowingly trapped in unfair finance agreements, prompting an investigation by the Financial Conduct Authority (FCA).
The FCA Investigation and What It Means for Consumers
The FCA launched an official investigation into the car finance industry to assess how widespread these practices were and to determine appropriate compensation for affected consumers.
The investigation covers deals arranged before January 2021, when the FCA officially banned discretionary commission models. Early findings revealed that lenders and dealers had collectively overcharged millions of UK consumers, leading to an estimated £10 billion in potential compensation claims.
The FCA’s goal is clear — to ensure fairness and transparency in motor finance and to restore trust in the lending system.
Average Compensation: £700 Per Claim
According to the latest figures, the average payout under the car finance compensation scheme is around £700 per claim. However, this amount can vary based on the loan size, interest rate, and duration of the agreement.
For some consumers, especially those with larger or multiple finance agreements, payouts could reach several thousand pounds.
For example:
A car purchased for £20,000 under a high-interest PCP deal could result in a refund exceeding £1,500.
Drivers who took out multiple agreements with inflated interest could receive significantly higher compensation.
This growing compensation movement mirrors the Payment Protection Insurance (PPI) scandal, which saw millions of UK consumers receive refunds for mis-sold insurance products.
Who Can Claim Compensation?
You could be eligible for compensation if you financed a vehicle between 2010 and 2021 using a PCP or HP finance agreement and were not informed about how commission was structured.
You may qualify if:
You took out a car loan or finance deal during this period.
The dealership did not disclose that your interest rate could be increased for higher commission.
You believe your monthly payments were higher than necessary.
You no longer own the car, but the finance agreement fell within the relevant timeframe.
Even if you have finished paying off your car finance, you can still submit a claim.
How to Claim Your Car Finance Compensation
The claims process is relatively simple and can be done in a few key steps:
Check Your Agreement – Identify if your car finance was a PCP or HP deal between 2010–2021.
Find Out the Lender – Locate the lender’s details (e.g., Black Horse, Barclays Partner Finance, Santander, etc.).
Submit a Formal Complaint – Write to your lender, explaining you believe you were overcharged because of a discretionary commission model.
Wait for the Lender’s Response – The lender has eight weeks to reply.
Escalate to the Financial Ombudsman Service (FOS) – If the lender doesn’t respond fairly or on time, you can refer your complaint to the FOS.
There are also claims management firms that specialize in handling such cases, but it’s often better to start by contacting the lender directly to avoid unnecessary fees.
Major Lenders Under Review
The FCA investigation has reportedly included major UK car finance providers such as:
Lloyds Banking Group (Black Horse Finance)
Barclays Partner Finance
Santander Consumer UK
MotoNovo Finance
Volkswagen Financial Services
These companies may have participated in discretionary commission arrangements before the 2021 ban. If you financed your vehicle through one of these lenders, your chances of eligibility are higher.
Why the Scandal Matters
This car finance scandal highlights serious flaws in how commission-based car finance deals were sold to consumers. Drivers trusted dealerships to provide fair and transparent finance options, but many ended up paying hundreds or even thousands more than they should have.
The scandal has also sparked a broader conversation about financial ethics and consumer protection, forcing the car finance industry to adopt more transparent lending practices.
The FCA’s intervention aims to ensure that no customer is unfairly charged and that the lending industry rebuilds consumer trust.
How Much Could the Industry Pay Out in Total?
With millions of agreements under review, experts predict that total compensation could reach £8–10 billion. If these figures hold, this would make the car finance scandal one of the largest consumer compensation schemes in UK history.
Each claim may seem small in isolation — averaging around £700 — but the combined financial impact on the industry is enormous. Lenders are now setting aside large sums to cover potential payouts and legal costs.
Protecting Yourself in Future Car Finance Deals
To avoid falling victim to similar practices in the future, consumers should take a more proactive approach when signing new car finance agreements.
Always ask how commissions are paid and ensure the dealer explains this clearly.
Compare multiple offers from different lenders to get the best possible rate.
Read all terms and conditions carefully before signing any documents.
Keep all records of your agreement and communication for future reference.
Being informed and cautious can prevent future financial loss and ensure you’re treated fairly.
Final Thoughts
The car finance scandal marks a pivotal moment in UK consumer protection history. With average payouts of £700 per claim, the compensation effort is already delivering justice to thousands of mis-sold car finance customers.
If you believe you were affected, now is the time to act. Submitting a claim could help you recover money that’s rightfully yours and hold lenders accountable for unfair practices.
As the FCA investigation continues, more lenders may be required to compensate affected customers — ensuring that fairness and transparency remain central to the UK’s car finance industry.
See More:
Car Finance Scandal: Average Payouts of £700 Per Claim Under Compensation Plans
