Car Finance Mis-selling: Claim £8.2 Billion Hidden Commission Scandal

The UK car finance industry faces its largest consumer compensation scandal in history, with an estimated £8.2 billion in hidden dealer commissions affecting 14 million Personal Contract Purchase (PCP) and Hire Purchase (HP) agreements signed between April 6, 2007 and November 1, 2024. Following the Supreme Court judgment in August 2025 that confirmed motor finance lenders have liabilities to their customers, the Financial Conduct Authority (FCA) launched a formal consultation on October 7, 2025 (extended to December 12, 2025) for a mandatory consumer redress scheme expected to launch in early 2026. The scheme will compensate consumers who were charged higher interest rates due to Discretionary Commission Arrangements (DCAs), high commission arrangements (35%+ of total credit cost or 10%+ of loan amount), or undisclosed contractual ties between lenders and brokers. Average compensation is projected at £700-£1,100 per agreement, though individual payouts could range from £200 to £5,000+ depending on the commission rate and agreement size.

Discretionary Commission Arrangements (DCAs) allowed dealers to negotiate the interest rate charged to customers and receive higher commission payments (typically 10-35% of the total credit cost) for securing higher rates. This created a massive conflict of interest where dealers profited by increasing customers' borrowing costs without disclosure. The Court of Appeal ruled in October 2024 (Johnson v FirstRand Bank) that lenders must obtain informed consent when paying undisclosed commissions that create conflicts of interest—a decision upheld by the Supreme Court in August 2025, definitively confirming lenders' liabilities. This landmark ruling extends beyond DCAs to all commission models where the dealer has a conflict of interest, potentially affecting fixed commissions (around 10%) and contractual ties as well. The FCA's October 2025 consultation proposal expands eligibility to include not just DCAs but also **high commission arrangements** (35%+ of total credit cost or 10%+ of loan amount) and **exclusive/near-exclusive contractual ties** between lenders and brokers. Consumers are strongly advised to file complaints NOW to preserve their claims ahead of the early 2026 scheme launch, using the FCA's template letter available on their website.

Beyond hidden commissions, car finance mis-selling encompasses GAP (Guaranteed Asset Protection) insurance and extended warranty scams. The FCA intervened in February 2024 after finding that 86% of GAP insurance policies provided poor or no fair value to consumers, with products costing £400-£1,200 but providing benefits worth £50-£200. Extended warranties similarly showed 50-70% of premium going to dealer commission rather than actual coverage. These add-on products were often sold without proper disclosure, bundled into finance agreements without clear opt-out options, and priced at 200-400% markup over standalone market alternatives. Consumers have successfully reclaimed 50-100% of add-on costs through Financial Ombudsman complaints, with average GAP insurance refunds of £600-£800.

In the United States, auto finance discrimination remains a persistent problem, with the Consumer Financial Protection Bureau (CFPB) and Department of Justice securing $950,000+ settlements in 2024 against New York dealerships for charging protected classes (racial minorities, women) significantly higher interest rates despite identical creditworthiness. In August 2024, the FTC and Arizona Attorney General announced a settlement with an Arizona-based vehicle dealership for discriminating against Latino consumers by charging higher interest rates and more expensive add-on charges. Studies show average overcharges of $280-$1,362 per loan for African American and Hispanic buyers compared to white buyers with the same credit profile. The FTC's CARS Rule (Combating Auto Retail Scams) was published in July 2024 to prohibit dealer add-on product sales without clear itemized disclosure and written consent, addressing longstanding bait-and-switch tactics where buyers discover unwanted $1,500-$3,000 in add-ons (VIN etching, paint protection, fabric treatments) only after documents are signed. However, **the Fifth Circuit Court of Appeals vacated the CARS Rule in January 2025**, ruling that the FTC violated its own procedural rules by failing to issue an Advance Notice of Proposed Rulemaking. Despite this setback, state attorneys general and federal agencies continue aggressive enforcement—consumers should still file complaints citing unfair and deceptive practices under existing law.

The European Union has strengthened consumer protections through the Consumer Credit Directive 2023/2225 (effective November 2026), which requires mandatory assessment of borrower creditworthiness before credit approval, prohibits tying (requiring consumers to purchase insurance or other products as condition of credit), and mandates clear disclosure of total cost of credit including all commissions. Member states must implement enforcement mechanisms allowing consumers to void credit agreements with unfair terms and claim refunds. Existing EU protections under Directive 93/13/EEC (Unfair Terms) already allow challenges to excessive interest rates, hidden commissions, and one-sided contract terms, with national courts empowered to declare such terms void ab initio (invalid from the start), entitling consumers to retrospective adjustment and refunds.