Car finance compensation: how consumers are being signed up twice and charged to leave

Regulators warn claims firms to clean up their practices as millions of consumers risk losing out through confusion, duplication and unnecessary fees.

Millions of drivers have now heard the same message: you could be owed compensation for your car finance. For some, a new problem has replaced the old one. And it could leave them paying the price again.

Some consumers are being signed up to multiple claims firms for the same complaint, often without realising it. In some cases they later discover they may have to pay fees just to leave. Regulators say this should not be happening.

The Financial Conduct Authority (FCA) and Solicitors Regulation Authority (SRA) have warned firms to clean up their practices and put consumers first as the car finance compensation process moves towards a nationwide redress scheme.

In a joint statement, the regulators highlighted concerns about people being signed up to more than one claims management company (CMC) or law firm for the same complaint. That can leave consumers facing exit or “termination” fees if they try to step away. Any fees charged must be fair, proportionate and clearly explained. In some cases, regulators say charging an exit fee may not be appropriate at all.

It’s not hard to see why this has happened. Discretionary commission, where dealers could set their own interest rates and earn more by charging customers higher rates, was banned in 2021. But a clear route to compensation did not immediately follow. Most complaints made directly to lenders were rejected, and law firms and claims companies stepped in as awareness grew that drivers might have been overcharged.

Social media advertising has amplified the issue. Once someone clicks on an advert about car finance compensation, platform algorithms tend to show them more of the same. That can mean repeated prompts to “check” whether compensation might be owed,  even if someone has already taken steps to pursue a complaint. 

Darren Smith, Managing Director at Courmacs Legal, is clear about where the fault lies:

“It is fundamentally unfair for a driver to be hit with a termination fee simply because they clicked a social media button to check if they were overcharged. Consumers must not be further harmed by the very firms claiming to help them.”

The people caught out are often those who did everything right. They saw an advert, they clicked, they tried to find out if they were owed money. The problem is what happened next.

“Securing car finance redress should not be an obstacle course for consumers who have already been failed by lenders,” added Smith.

Use our free tool to see what to do next, with template letters and updates so you don’t miss out.

Consumers are being failed twice over

“Too many people have already been let down by their lender. The last thing they need is more confusion from the firms they turned to for help,” says Alex Neill, co-founder of Consumer Voice. 

“We’re calling on all firms to be upfront with consumers from the start – one claim, one representative, no surprises. Get that right, and the redress scheme has a real chance of working for the people it’s meant to serve.”

The regulators must make their expectations clear, monitor what is happening in practice and be prepared to step in. The scale of the problem suggests they may need to move quickly.

How widespread is the car finance duplication problem?

The regulators have not published figures on how many people may have signed up with more than one representative. When we asked, the FCA said only that it had received “a number of reports from stakeholders” and was highlighting the issue so it could be addressed.

Industry data from Valid8, a claims verification provider, gives a clearer picture. Based on analysis of around 15 million car finance commission checks, the firm found that up to 70% were flagged as duplicate enquiries.

“Consumers signing up with multiple firms is becoming a significant issue,” says Ryan Hayes, CEO of Valid8. “We’ve seen duplication rates of 60-70% with some firms. This creates a real risk that consumers have entered into agreements without fully understanding them and could face termination fees as a result.”

“Lenders and law firms may feel the inconvenience of multiple representation,” adds Alex Neill. “But it is consumers who bear the real cost. The regulators must make their expectations clear and be prepared to step in.”

Can technology fix the problem?

Some parts of the legal sector are now exploring ways to reduce duplication. Valid8 says it is working with law firms and credit reference agencies to identify multiple sign-ups earlier – flagging when the same person has been registered more than once so the situation can be resolved before it becomes a problem.

“Firms must move away from models that bury formal representation in the small print,” says Smith. “The fix is simple: a ‘Check Before Sign’ protocol to verify whether a car finance claim already exists before a consumer commits. If a firm hasn’t run a clear, transparent onboarding process, they shouldn’t be charging a penny in exit fees.”

While the technology exists, the bigger question is whether the sector will adopt consistent safeguards quickly enough to protect consumers before the FCA’s redress scheme begins.

Why people end up signing up more than once

Most people don’t deliberately sign up with multiple firms. In many cases, they simply don’t realise they already have. There are several reasons this can happen.

Some consumers continue seeing adverts encouraging them to “check” whether they are owed compensation. If they don’t remember signing up previously – or believe the first check didn’t work – they may respond again.

In other cases, the original sign-up process may not have been clear enough. Marketing that starts with a “free check” can sometimes lead into a full claim without the consumer realising they have formally appointed a representative.

Poor communication after sign-up adds to the confusion. If people don’t hear anything from the firm they signed up with, they may assume the process didn’t work and try again elsewhere.

The way consumer data is handled can make things worse. Some lead generators and CMCs pass enquiries to multiple firms, and consumers may then receive several follow-up calls or messages encouraging them to proceed. All of this can make it very difficult for people to keep track of what they have actually agreed to.

What happens when duplication is discovered

When duplication is discovered, the FCA and SRA are clear: representatives must tell their client immediately, explain what multiple representation means for their claim and set out their options. 

We’ve seen at least one example of a consumer being contacted directly by a lender rather than their representative. The communication left little room for the consumer to understand what to do next or what the consequences might be. Consumers should be able to decide which firm, if any, acts on their behalf, without pressure or financial penalties being used to influence that choice.

What to do if you’ve signed up with more than one firm

If you think you may have signed up to more than one CMC or law firm for car finance mis-selling, your choice comes first. You can decide which firm represents you, or whether you want to proceed without representation at all. 

Where fees are mentioned, they must reflect actual work done, be clearly itemised and be reasonable and proportionate. If the original sign-up was unclear, or the onboarding process was poor, regulators say it may not be appropriate to charge a termination fee at all.

If something doesn’t feel right, complain to the firm first. If that doesn’t resolve things, you can take the complaint to the Claims Management Ombudsman or the Legal Ombudsman, depending on who regulates the firm.

How this impacts the FCA car finance redress scheme

The duplication issue is an early warning sign, just weeks before the FCA is expected to launch its car finance redress scheme – a mass compensation scheme that could affect millions of drivers.

If confusion and duplication are already appearing before the scheme begins, there is a real risk these problems grow once compensation starts to flow. For the scheme to work, it must be simple, clear and designed around how people actually behave. That’s why we have been clear about what needs to change.

What Consumer Voice wants from the car finance redress scheme

Consumers have waited long enough. But the scheme will only work if their interests come first. We are calling for five clear changes:

• Revisit the 17% APR adjustment so it reflects the full scale of car finance mis-selling since 2007 (the current figure may significantly underestimate what was actually taken.)
• Set a realistic threshold for high commission
• Apply 8% simple interest to reflect real consumer harm
• Make the scheme opt-out wherever firms have the records, including for the very many who have had their complaints rejected by lenders.
• Guarantee clear communication and strong oversight from day one

Without these changes, people risk receiving less than they are owed, or miss out entirely. Read our full response on what the FCA car finance redress scheme must deliver.

Read this if you took out car finance between 2007 and 2024

If you have not yet complained about your mis-sold car finance, now is the time to do it. Complaining now secures your place at the front of the queue if you’re owed compensation.

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