Motorists could be in line for thousands of pounds in compensation due to a car finance mis-selling scandal, drawing comparisons with the infamous Payment Protection Insurance (PPI) fiasco.
Many drivers have found themselves out of pocket for years, unaware of the mis-selling scandal involving car finance. At the heart of the issue are undisclosed “secret” commissions paid by lenders to car dealerships, which resulted in consumers signing up for finance agreements with higher interest rates than they should have been charged.
The full scale of the scandal has only recently emerged, with a significant UK Supreme Court judgement expected later in 2025. This decision will determine the amount car finance lenders must repay to their customers.
If you’ve purchased a vehicle through Personal Contract Purchase (PCP) or Hire Purchase (HP) before 28 January 2021, you might be entitled to reclaim thousands of pounds.
My Claim Group (MCG) is an organisation dedicated to assisting those affected, or who suspect they might be, in recovering their lost funds.
The company suggests that up to 40% of HP and PCP finance deals from 2007 to 2021 could involve secret commissions, indicating that many consumers may have overpaid and are eligible for compensation. MCG has already supported vehicle owners in lodging claims that could average around £4,000 each, with 1.2 million claims processed so far.
Here’s our comprehensive guide to understanding the car finance mis-selling scandal.
What is the background to the scandal?
Before the regulatory changes in 2021, many car finance agreements were based on “discretionary commission arrangements.”
Under these terms, car dealers could set the interest rates on finance deals they offered, with higher rates leading to greater commissions.
This created a conflict of interest, as dealers had a financial incentive to push loans with higher interest rates that weren’t necessarily the most cost-effective for consumers. Often, the commission structures weren’t fully disclosed to customers, leading them to sign up for more expensive loans without knowing that the dealer’s commission influenced the terms.
The practice was banned by the Financial Conduct Authority (FCA) in January 2021, which aimed to increase transparency and protect consumers. Subsequent investigations revealed that such problematic practices dated back to at least 2007, prompting a comprehensive review of past lending practices.
A significant shift occurred in October 2024 when the Court of Appeal declared that the non-disclosure of commissions on car loans was illegal. This ruling broadened the scope for mis-selling claims, establishing a precedent that any undisclosed commission arrangements could now be a valid ground for consumer compensation.
This judgement has triggered a wave of complaints, with the Financial Ombudsman Service recording an unprecedented 18,658 new car finance cases in the last quarter of 2024.
What was the impact on lenders?
The financial fallout for lenders has been colossal. In the wake of the Court of Appeal’s decision, Lloyds Banking Group has upped its provision for potential compensation payouts to £1.1 billion.
Analysts are predicting that the total hit on Lloyds could surpass £4 billion.
Other major lenders, including Santander UK, Close Brothers, and Barclays, are also staring at substantial potential liabilities, with some industry estimates suggesting that total compensation costs could climb to as much as £30 billion.
What is the current situation?
The scandal led to government intervention. In January 2025, UK Chancellor Rachel Reeves stepped in to intervene in the Supreme Court case to shield lenders from possible multibillion-pound payouts, voicing concerns about the wider economic implications and the potential effect on consumers’ access to car loans.
At the same time, claims management firms like My Claim Group are actively urging consumers to lodge complaints.
The Supreme Court is currently examining a crucial appeal by car loan providers, following previous judgements that sided with consumers. The FCA has temporarily halted the complaints process until the court’s decision, expected later this year.
The result of this appeal will be pivotal in establishing the liability of lenders.
What can I do?
If you suspect you may have been affected by the scandal, head over to the My Claim Group website for more information and start the straightforward process to find out if you’re due a refund.