Financial regulator must put consumers first in car finance redress scheme

New Consumer Voice research shows widespread harm, low trust and a strong public appetite for an automatic, easy to access redress scheme

The scale of car finance mis-selling is now undeniable. The Financial Conduct Authority (FCA) says 44% of car finance agreements – around 14 million loans – showed signs of unfairness, while lenders rejected 99% of the complaints they looked at. 

Our research paints an even starker picture. Only 22% of consumers recall commission being explained clearly, and many say they would have made different choices had they known their interest rate was shaped by commission. A significant number faced stress, payment difficulties or had to borrow more because their loan cost more than it should have.

Today, the FCA closes its consultation on a landmark motor finance compensation scheme. We are urging the regulator to ensure the scheme reaches everyone affected, and delivers compensation that properly reflects the financial harm millions of people suffered.

Consumer Voice co-founder, Alex Neill, said:

“Drivers have waited long enough for justice and won’t accept a redress scheme that papers over the cracks. People were charged more than they should have been, and many were pushed into real financial difficulty. The FCA must deliver a scheme that fairly compensates consumers, not one that leaves them out of pocket again.”

The FCA is right to intervene. But for this redress scheme to work for consumers, it must be simple, inclusive and designed to restore fairness. It must not to minimise payouts or place the burden on people already let down by the industry. The consultation includes positive steps, but also serious risks. Our response sets out where change is needed.

If you took out car finance between 2007 and 2024, this matters to you

Before we get into the detail, one thing matters above everything else: if you have not yet complained about your car finance agreement, now is the time to do it. Complaining now puts you at the front of the queue if you are owed compensation and ensures your case is on the record.

The decisions being made now will shape how much compensation people receive, and how easy it is to get.

Use our free tool to find out what to do next. You’ll get free template letters to help you complain and get our alerts so you don’t miss any steps in claiming back what you’re owed.

What the car finance redress scheme is meant to cover

The FCA’s proposed scheme is designed to compensate people who were overcharged because key commission arrangements were not properly disclosed when they took out car finance.

Under the proposals, a loan could be classed as unfair if a lender or broker failed to clearly explain one or more of the following:

• Discretionary commission arrangements (DCAs) – where brokers could increase your interest rate to earn more commission (banned in 2021).
• High commission arrangements – where commission made up a very large share of the cost of the loan.
• Tied arrangements – where a lender had exclusive or near-exclusive rights to offer finance through a particular dealer or broker.

The FCA expects affected consumers to receive an average payout of around £700 per agreement, though some people could receive more depending on their loan and how long they were overcharged. 

Our concern is that, as currently designed, the scheme could leave many people short-changed, receiving less than they should or missing out altogether. That’s unless key changes are made.

The scheme must be opt-out wherever records allow

According to the current proposals, consumers will only be automatically included in the scheme if they raise a complaint with their lender. They will be invited to opt in to the scheme if they haven’t yet complained or if they complained previously and this was rejected.

If firms can identify you from their records, we think you should be in the scheme unless you choose to opt out. People should not be expected to decode complex rules or rely on lenders to explain their rights, especially when trust in lenders is at rock bottom. Only 7% of people trust lenders to give them impartial information

Our research shows strong public support for automatic inclusion: 57% want an opt-out scheme, rising to 71% among people who have had several agreements. Automatic inclusion (with the option to opt out) is the only way to ensure the scheme reaches those who are most likely to miss out: older people, those on lower incomes, and the many consumers who no longer remember which lender financed their car.

The threshold for high commission is far too high

The FCA plans to define a loan as “high commission” in cases where commission made up around a third of the total cost of the loan. That is far beyond what most people would expect, or consider reasonable. 

Commission is money paid by lenders to dealers or brokers for arranging your finance. When it is hidden, it incentivises brokers to push more expensive loans, even if it means higher costs to the customer.

Our research shows people are sensitive to much smaller price differences. Three in ten would rethink a deal if it costs rose by 10%. Nearly two thirds would do so at 15% or below. Only 7% would tolerate price rises above 20%.

Against this backdrop, a commission making up around one third of the total cost of credit signals an incentive that most consumers would clearly see as significant, and something they would expect to be told about before signing a deal.

Setting a threshold of at least 20% would be far closer to what consumers consider fair, and would stop people from missing out because the rules are stacked against them. 

Why the proposed 17% APR adjustment matters to your payout

This part of the scheme could make a big difference to how much compensation people receive.

The FCA proposes to estimate losses by reducing consumers’ interest rates by 17%, to reflect how much extra they paid because of hidden commission. In simple terms, this is meant to represent the average amount people were overcharged.

For example, the FCA’s analysis suggests that a loan with a 10% interest rate should often have been closer to 8.3%. That means consumers paid roughly 17% more in interest than they should have.

But there’s a problem. This figure is based only on loans taken out between 2019 and 2021, after lenders had already started changing their behaviour because they knew the regulator was watching and a ban on discretionary commission was coming.

Analysis of agreements from earlier years, when commission-driven pricing was at its worst, were not used, even for comparison. That matters because if people were overcharged more in earlier years, using later data could systematically understate compensation.

Because this 17% figure sits at the heart of the compensation calculation, even small errors could mean millions of people receive less than they are owed. If the FCA cannot show that this figure properly reflects the full period from 2007 to 2021, a simpler approach – repaying the commission that should never have been hidden – may be fairer and easier to understand.

The proposed interest rate could leave people short-changed

When people are paid compensation, interest is added to reflect the fact they were without their money for years.

The FCA has proposed using the Bank of England base rate plus 1%, but for most consumers it would seriously underestimate the real cost of being overcharged.

Many people didn’t just lose money on paper. Our research shows that because their car finance cost more than it should have:

• 19% struggled to pay everyday bills
• 13% had to rely on more credit
• 10% borrowed from friends or family

In other words, many people were forced to borrow at much higher rates than the base rate just to get by.

Courts recognise this reality. In the recent case Rachael Kent won against Apple, judges concluded that 8% simple interest is a fair way to reflect what ordinary people lose when they are deprived of money over time.

Using a rate close to the base rate risks repeating the original injustice, leaving consumers under-compensated.

Why many consumers could struggle to understand the scheme

Although awareness of the car finance scandal is high, understanding is not.

Four in five people have heard they might be owed compensation, but many don’t know whether they qualify, what rules apply, or what they need to do next. Only 22% recall commission being explained clearly at the time they took out their loan. Trust in lenders to explain the scheme fairly is extremely low.

There’s also a practical problem. Many people took out their car finance years ago. Paperwork has been lost, cars have been sold, and people don’t always remember the name of their lenders. A scheme that relies on consumers finding old documents or interpreting complex letters is likely to leave large numbers of people behind.

For this scheme to work, information must be: clear and consistent, tested with real consumers, and not dependent on paperwork people no longer have.

Strong oversight will also be essential to make sure firms follow the rules properly from day one.

What Consumer Voice wants from the motor finance redress scheme

Consumers have waited long enough for justice. The FCA’s scheme will only work if it reaches everyone affected and pays compensation that reflects the real harm caused. 

We are calling for five clear changes:

• Make the scheme opt-out wherever firms have the records. People should not have to opt-in just because they haven’t already complained or had their complaints rejected.  
• Set a realistic threshold for high commission. A commission taking up a third of the cost of credit is not reasonable by any consumer standard.
• Revisit the 17% APR adjustment. The calculation must reflect the true scale of pricing distortion over the whole 2007-2021 period.
• Apply 8% simple interest. This better reflects the real cost to consumers who had to borrow, cut back or struggle because of inflated loans.
• Guarantee a clear communication and strong oversight. With trust in lenders so low, consumers need confidence the rules will be followed and enforced.

These changes would create a scheme that is fair, easy to use and capable of restoring the trust that has been lost.

Read our full response to the FCA consultation. 

Our research

Consumer Voice survey of 2,021 members of the public who had taken out a car finance agreement between 2007 and 2024. The majority had taken out at least one agreement during 2007-2021, the key period under review. Fieldwork took place online via Qualtrics between 27 October and 9 November 2025.