The Truth Behind the Car Finance Mis-Selling Scandal – Expert Analysis by Martin Lewis
If you financed a car before 2021, you might have been unknowingly overcharged due to hidden commissions. Between 2007 and 2021, UK car dealers, brokers, and lenders used discretionary commission arrangements, inflating interest rates to boost their profits.
The Financial Conduct Authority (FCA) has been investigating this issue, and millions of UK drivers could now be entitled to claim compensation.
What is the UK car finance scandal?
Car finance agreements, particularly PCP (Personal Contract Purchase) and HP (Hire Purchase), were widely mis-sold through unfair lending practices.
Dealers had the power to adjust interest rates, often without the customer’s knowledge. The higher the interest rate, the more commission the dealer received.
This resulted in millions overpaying on their car finance deals.
Here are some statistics provide insight into the prevalence and growth of these financing methods during that period:
- 2009: Approximately 53% of new cars bought on finance by personal consumers were through PCP agreements.
- 2015: The share of PCP agreements increased to 76% of new cars financed by personal consumers.
- 2016: The proportion of private new car sales financed through any method rose to 86.6%, up from 45.8% in 2009.
- 2019: PCP deals accounted for 75% of the UK’s consumer car finance market.
PCP & HP mis-selling: are you owed compensation?
If you took out a PCP or HP car finance deal between 2007 and 2021, you may have been mis-sold.
Lenders and brokers did not disclose commissions, leading customers to pay higher interest rates than necessary.
The Financial Ombudsman Service (FOS) and FCA have ruled that consumers should have been informed about these charges. You may be eligible to claim back thousands.
Find out if you’re owed a refund with this free mis-sold car finance claim payout calculator.
Latest developments in the car finance investigation
The FCA has extended the deadline for lenders to provide final responses to complaints regarding discretionary commission arrangements until 4 December 2025 (FCA official update).
This means affected customers now have more time to lodge complaints and seek compensation. Consumer groups are pushing for a multi-billion-pound payout, similar to the PPI scandal.
How dealers and brokers overcharged UK consumers for car loans
Car dealers and brokers used hidden commissions to inflate finance costs.
They set higher interest rates to maximise their commissions, leading customers to overpay by hundreds or even thousands of pounds.
Many customers were unaware they had been misled, as these deals were often marketed as the best available finance option.
Check if you were mis-sold a PCP or HP deal in minutes
You can check if you were mis-sold using the free Mis-sold Car Finance tool. This tool helps you determine whether your finance deal included hidden commissions and estimates your potential compensation.
The UK car finance scandal: a timeline of events
- 2007-2021 – Hidden commission arrangements widely used in car finance agreements.
- 2019 – FCA launches an investigation into the car finance industry (FCA source).
- January 2021 – FCA bans discretionary commission arrangements (FCA news release).
- October 2023 – FCA orders firms to review complaints and pay compensation where appropriate (FCA consumer update).
- February 2024 – Legal cases against lenders and brokers increase, with estimates of £16 billion in compensation claims (thetimes.com report).
- April 2024 – FCA extends complaint handling deadline to December 2025.
Ongoing – Johnson and Wrench v FirstRand Bank and Hopcroft v Close Brothers: Landmark legal cases related to mis-sold car finance agreements (judiciary.uk).
Mis-sold car finance payout calculator for each finance company
| Case Number | Case Details | Payout Checker free tool |
| CA-2023-001453 | In the Court of Appeal (Civil Division) on second appeal from the County Court at Cardiff. | Motonovo Finance Mis-Sold Payout Checker |
| CA-2024-00353 | In the Court of Appeal (Civil Division) on second appeal from the County Court at Birmingham. | Motonovo Finance Mis-Sold Payout Checker |
| CA-2024-00482 | In the Court of Appeal (Civil Division) on appeal from the County Court at Hull. | Close Brothers Mis-Sold Car Finance Payout Checker |
If your car finance was with any of the lenders or manufacturers involved in mis-sold PCP deals, you may be entitled to a refund.
Check if you’re eligible for a compensation claim today to find out how much you could recover for free!
How car dealers profited from secret commission agreements
Lenders gave dealers control over setting interest rates, with commissions tied to higher rates.
This meant that the more you paid, the more the dealer earned. The FCA’s findings revealed that 92% of customers were unaware of these commission-based interest rate increases (FCA Review).
FCA investigation into car finance: what it means for consumers
The FCA is holding lenders accountable for unfair lending practices. If you financed a car before 2021, you can now challenge your lender and demand compensation. The FCA is considering a formal redress scheme, similar to the PPI refunds.
Revealed: how interest rates were inflated to boost dealer profits
Lenders allowed dealers to set interest rates above market levels to earn higher commissions. This resulted in many consumers paying thousands more than necessary.
The 2021 ban on discretionary commission: too little, too late?
While the FCA banned discretionary commissions in 2021, millions had already been overcharged. The ban stopped future mis-selling, but those affected before 2021 are still waiting for refunds.
UK court rules against hidden commissions in PCP deals
Recent court rulings have found that car finance lenders must refund customers where commissions were hidden. This has led to a surge in compensation claims.
How to request a refund for overcharged PCP or HP interest
If you believe you were mis-sold, you can take the following steps:
- Check your finance agreement – Look for details about commissions.
- Contact your lender – Ask for a full breakdown of your agreement.
- Use the free compensation calculator – Check here.
- Complain to the Financial Ombudsman – If your lender refuses to compensate you.
The future of car finance in the UK
With growing pressure for compensation, the car finance industry is changing. Consumer watchdogs are demanding stricter regulations to prevent future mis-selling.
Can you cancel a PCP or HP agreement? your legal options
If you believe your car finance agreement was unfair, you may be able to cancel the deal. The FCA and FOS provide support for consumers seeking to exit unfair contracts.
How to use the financial ombudsman service to fight for compensation
If your lender rejects your complaint, you can escalate it to the Financial Ombudsman Service (FOS).
They will review your case and determine if you are entitled to compensation (FOS official site).
Avoiding future scams: tips for safe car finance deals
- Always compare finance deals before signing.
- Request full transparency on commission payments.
- Use independent financial advisors rather than dealer-arranged finance.
- Check interest rates with multiple lenders.
Conclusion
The UK Car Finance Scandal is one of the biggest financial mis-selling cases in history. If you took out car finance between 2007 and 2021, you may have been affected.
The FCA is under pressure to introduce a compensation scheme for mis-sold car finance agreements, with legal experts predicting payouts could reach billions.
Following a Court of Appeal ruling, liabilities could total up to £30 billion. The FCA has extended the deadline for handling complaints to December 2025 to manage the high volume of claims (The Times, FCA).
Some experts, including Martin Lewis, believe compensation for mis-sold car finance could rival the £40 billion PPI scandal (MoneySavingExpert).
Check if you are owed compensation by using the free PCP Claims Calculator today.