Consequential loss and interest on other debts in mis-sold motor finance claims

Motor finance is a high-volume product sold in an environment where decisions are often made quickly. A customer wants to buy a car, the dealer organises the paperwork at the point of sale, and the lender relies on the dealership as an intermediary to generate business at scale. That is an efficient operating structure, but it also created the conditions in which inadequate disclosure of commissions and contractual ties could occur at a systemic level. It is these practices that are at the centre of the Financial Conduct Authority’s (FCA) proposed motor finance redress scheme.

The regulator’s proposals cover motor finance agreements entered into between 6 April 2007 and 1 November 2024, where consumers were not adequately informed that one of the following applied:

• a discretionary commission arrangement (DCA). DCAs were a mechanism banned by the FCA on 28 January 2021 that allowed motor finance brokers (in most cases, the car dealer) to adjust a customer’s interest rate to earn a higher commission.
• a high commission arrangement, defined in the FCA’s proposals as at least 35% of the total cost of credit and at least 10% of the loan amount.
• a contractual tie between the lender and broker, which gave a lender an exclusive or near-exclusive right to provide credit through that broker.

These proposals have received significant coverage and public commentary, but discussions around consequential loss, where much of the real-world impact may be felt by affected consumers, have been limited.

Why consequential loss should not be overlooked

Consequential loss is easy to sideline, or not to consider at all, because it is harder to measure than a commission refund calculated using a defined methodology, such as the one proposed by the regulator. It is also more challenging to address at scale, which is one reason it is not fully reflected in a standardised scheme.

Yet consequential loss is central to concerns about motor finance mis-selling because overpayment did not, and does not, occur in a vacuum. It can be tempting to treat an overpayment as a contained financial error, but the reality is that the impact is significantly more profound. When a consumer pays more than they should for their car, this affects cash flow, forces families to make difficult household trade-offs, and, in some cases, may trigger a chain of higher-cost borrowing and credit stress.

This then leads to the broader, silent drag on the ‘real economy,’ where money that should have been available for household spending was instead diverted to lenders. In addition to receiving compensation for their direct loss and potentially claiming a higher level of compensatory interest depending on their circumstances, consumers may also have grounds for a claim for consequential loss where evidence and facts, tied together by a clear timeline, support such a narrative.

How mis-sold motor finance caused consequential loss

Not every affected consumer will have suffered consequential loss. However, where such loss exists, it will often be the difference between redress that is technically correct and redress that reflects a consumer’s lived financial impact.

There are several ways in which mis-sold motor finance may have caused this.

Higher-cost borrowing

The most direct knock-on consequence of inflated motor finance costs is that consumers with less available cash each month may need to compensate by borrowing elsewhere.

Examples might include:

• increasing credit card expenditure and falling into a pattern of persistent revolving balances to cover essential spending;
• relying on an overdraft more frequently or for longer; or
• taking out short-term loans to bridge the gap between income and outgoings.

Consequential loss in these scenarios is often measurable as additional interest and charges that otherwise would not have been incurred. If these scenarios then led to a consumer taking out a debt consolidation loan, it may be possible to include the interest on that borrowing in a claim.

Arrears, charges, and penalties

In households where money is already tight, even a small extra outgoing per month can be enough to create difficulties and push accounts into arrears. That means that the consequential loss then expands via:

• late payment charges;
• default fees;
• increased interest rates following missed payments, if applicable; and
• potentially, collection fees in some circumstances.

These amounts are often straightforward to evidence because they are visible on statements or noted in lender correspondence.

Potential refinancing and negative equity dynamics

As the marketing and sale of motor finance often focus on monthly repayments, it is easy to fall into the trap of thinking that an agreement affects only monthly cash flow. The reality is that a motor finance agreement can shape finances and decisions over several years.

For example, if a consumer is sold an agreement with a higher cost of credit than necessary or that is poorly suited to their circumstances, that can later lead to:

• refinancing due to credit stress;
• rolling balances into new agreements; or
• being trapped in a negative equity cycle, limiting the ability to exit finance cleanly or at all.

Issues can also compound when products like GAP insurance, which may also have been mis-sold, are rolled into a finance agreement, while affordability concerns may increase the likelihood of accepting a dealership’s proposed solution.

Consequential loss often arises in a cumulative pattern, such as in this example, rather than in a single transaction or decision.

Credit history and cost-of-credit harm

Credit file impacts can be easily overlooked, but they can be costly over time. Where an artificially inflated motor finance payment results in missed or late payments, the detrimental impact on the consumer’s credit score could mean they face higher rates on future borrowing or even reduced access to mainstream credit.

Quantifying this type of consequential loss is less straightforward. However, it may be possible to identify adverse markers aligned with subsequent borrowing terms by using credit report history.

Claiming interest on other debts

The central proposition is straightforward, but consumers must be able to prove it:

The consumer paid more than they should have under their motor finance agreement because it was mis-sold. This situation created new or worsened existing cash flow pressures. Consequently, the consumer had to borrow elsewhere, or remained in debt for longer, and paid interest and potentially other charges that they would not otherwise have incurred.

Causation and demonstrating loss in practice

A robust consequential loss claim will demonstrate a chain of events rather than simply resembling a collection of grievances.

A step-by-step analysis of consequential loss may look like this:

1. Identify the overpayment period on the motor finance agreements, or the period of the relevant commission-driven impact.
2. Map monthly cash flow during this period, so that income, essential outgoings, and the motor finance repayment are all clear.
3. Identify the borrowing response this led to, such as increased credit card utilisation or deeper or longer overdraft use.
4. Calculate the interest and charges associated with the borrowing response, usually via the relevant account statements.
5. Demonstrate the counterfactual position: what would have happened had the motor finance costs been cheaper? For example, could that borrowing have been avoided, reduced, or cleared sooner?

Foreseeability and why consequential loss should have been avoided

Consequential loss is not open-ended; the losses claimed must have been reasonably foreseeable. One element potentially in favour of consequential loss claims linked to motor finance mis-selling is that it is relatively easy to understand why some knock-on effects may be considered foreseeable:

• lenders and brokers know that many consumers are sensitive to monthly payment amounts, which is why they anchor sales and marketing around this figure;
• affordability assessments, when and where properly conducted, are designed to identify whether a consumer can sustain payments at a specific level; and
• increased payments predictably increase the risk of arrears and of consumers using other credit. The FCA addressed this issue outside of a motor finance context in its Relendingby high-cost lenders review, published on 6 August 2020.

Evidence matters and broad assertions are rarely enough

Even if the assertion is accurate and reflects a consumer's lived experience, simply stating that an artificially overpriced motor finance agreement 'made things harder' is speculative and cannot be tested against the evidence.

Conversely, where consumers can demonstrate a timeline, a consequential loss claim may be quantified and pursued rather than dismissed as not credible.

How consequential loss may interact with the FCA redress scheme and other routes

The objective of the regulator’s proposed redress scheme is to compensate consumers for the direct loss they suffered due to motor finance mis-selling, plus compensatory interest. A redress scheme following a standardised methodology designed for scale cannot adequately address the specific circumstances of each individual.

That is because consequential loss is non-linear, timing-dependent, and can differ significantly between consumers who suffered the same direct loss from mis-selling.

The FCA itself has alluded to the fact that its redress proposals are more geared toward delivering redress to as many affected consumers as possible, rather than compensating consumers for their total losses. It will therefore, by its nature, understate the real financial impact for consumers who suffered significant consequential loss.

Outside the regulator’s redress scheme

Consumers who choose not to participate in the regulator's redress scheme may address consequential loss as part of a complaint outside the scheme, either by complaining directly to their lenders or by instructing a solicitor to examine whether there is justification for pursuing litigation.

Motor finance complaint handling remains paused until 31 May 2026, after which lenders will have up to eight weeks to provide final responses to complaints. This pause applies only to lenders and does not affect consumers' ability to file a complaint if they wish to do so.

Parallel and additional claims

Consumers may choose to participate in the FCA's proposed scheme while also bringing parallel and additional claims, which may have different limitation periods or causation issues. Such claims may include unaffordable or irresponsible lending or the mis-selling of add-ons that increased the financed amount and monthly payment, adding to the debt burden.

In practice, these issues can overlap, and a rigorous analysis of whether a consumer has suffered consequential loss often helps clarify the broader context, the actual financial loss, and the lived experience.

How instructing a solicitor can help quantify consequential loss

While there are several potential benefits of instructing a solicitor to bring a motor finance claim, one practical advantage is that they can investigate whether the consumer may have additional grounds for a consequential loss claim and build a case to maximise the chances of success.

Investigating a claim

Investigating potential grounds of claim will include:

• Building a timeline of motor finance use.
• Identifying credit stress points, such as when overdraft use began or increased, or when accounts began to fall into arrears.
• Requesting and organising relevant documents, such as account statements, credit reports, and lender correspondence, to build a case.

Calculating the additional interest paid

Once a timeline has been established, quantifying the extent of any consequential loss becomes more straightforward and can be done by:

• isolating periods of increased borrowing;
• identifying interest and charges from statements;
• separating ‘background’ debt from debt that can be plausibly linked to the motor finance overpayment.

Many do-it-yourself claims struggle with these aspects because, even where losses genuinely exist, they are not presented in a way that a lender (or a court or an ombudsman) can observe and test.

Further observations on compensatory interest

The regulator has proposed that the redress scheme’s compensatory interest rate be the Bank of England base rate plus 1 percentage point, calculated on a simple basis, which would result in compensatory interest paid at an average rate of around 2.09%.

This has proved controversial, with Consumer Voice among those calling the proposed rate unfair. In its Consultation response report, published in December 2025, the advocacy group cited the Competition Appeal Tribunal’s ruling in Kent v Apple and its conclusion that 8% simple interest ‘is the correct rate for compensating private individuals.’

On 2 January 2026, the Financial Ombudsman Service confirmed that its own compensatory interest rate had changed to the Bank of England base rate plus one percentage point, calculated on a simple basis, from 1 January 2026. This may indicate that the FCA is unlikely to change the compensatory interest rate applied under the redress scheme, even after reviewing consultation submissions from Consumer Voice and others.

However, some consumers may be able to argue for a higher compensatory interest rate to apply to their motor finance redress award, independent of any parallel or additional claims, where they have suffered consequential loss and can evidence it.

Broader benefits of instructing a solicitor

Whether looking solely at motor finance complaints or the potential to bring parallel and additional claims, evidential burdens can be heavy, narratives can be contested, and calculations can be nuanced, particularly when it comes to consequential loss.

When you instruct a solicitor, you get the benefit of their ability to frame arguments, anticipate the challenges and counters to those arguments, and build the framework of your case to improve your prospects of recovering a higher overall amount.

Register your motor finance claim with Harcus Parker

If you believe you were affected by motor finance mis-selling and suffered knock-on financial harm, we can help investigate both your motor finance complaint and whether you have grounds to bring any additional and parallel claims, and quantify your losses accurately where necessary.

Register your claim with Harcus Parker here.