The scheme has been introduced in response to claims that many motor finance firms failed to disclose important information about commission arrangements. These arrangements, often hidden from borrowers, left customers with limited ability to negotiate better loan terms or seek out more competitive deals.
According to the FCA, up to 14 million finance agreements taken out between April 2007 and November 2024 could be affected by these practices. However, not all of these agreements will be eligible for compensation, and many customers have yet to make claims, with 81% of affected drivers saying a clearer system would prompt them to act.
Who is Eligible for Compensation?
The compensation is intended for individuals who took out personal contract purchase (PCP) or hire purchase (HP) agreements, where the commission structure was not fully disclosed. This includes three specific scenarios: discretionary commission arrangements (DCA), where brokers could increase interest rates to earn higher commissions; high commission arrangements, where commissions were deemed excessive (over 35% of the credit cost or 10% of the loan amount); and contract tie agreements, which restricted customers’ ability to shop around for the best deal.
Martyn James, a consumer rights expert, highlighted that the FCA estimates that nearly half of all motor finance agreements from the past 15 years may be eligible for compensation. While drivers who have already lodged complaints will be prioritised, the scheme is open to anyone who believes they were misled or charged unfairly. Crucially, the FCA has made it clear that drivers can handle the claims process themselves, without the need for costly third-party claims management services.
According to the FCA, those who believe they are owed compensation should act quickly to ensure they are among the first to be processed. If a lender cannot locate the original contract, they are still required to pay out if the borrower is eligible. To streamline the process, the FCA has also provided resources on its website, including complaint templates and guidance on how to lodge claims directly with lenders.
The Impact of the Delay and What to Expect Next
The extension of the consultation period is just the latest twist in the ongoing saga of car finance mis-selling. While the delay may frustrate drivers eager for resolution, it provides more time for the FCA to gather essential evidence from stakeholders across the motor finance industry. The consultation’s findings will influence the final compensation scheme, which could have a significant impact on both lenders and borrowers.
As the deadline approaches for submitting responses, the FCA continues to stress the importance of collecting data from both lenders and consumers to ensure the scheme’s effectiveness. Once the final rules are published, compensation payouts will begin, with the process expected to be completed by the end of 2026.
The announcement of the delay has prompted mixed reactions across the industry. Richard Pinch, Senior Risk Director at financial consultancy Broadstone, noted that while lenders had called for more time to review the scheme, the complexity of the issue and the large number of affected drivers means that significant changes to the final rules may be necessary. For many motorists, the wait for compensation may feel lengthy, but the scheme represents a major step toward greater transparency and fairness in the motor finance sector.
