How did lenders get away with motor finance mis-selling for so long?

For many years, millions of motorists took out motor finance agreements in good faith, believing that the person arranging the deal was presenting competitive options and acting in their best interests. In reality, large parts of the market were built on conflicts of interest, weak disclosure, and an information gap so wide that many consumers could not have identified the problem, even if they had suspected one.

The question is not merely why a dealer failed to explain that there was a commission. The question is how the system allowed commission structures and distribution models to operate at scale for well over a decade and, arguably, for longer, with limited effective regulatory or legal challenge, while consumers quietly overpaid and lived with the consequences.

Several forces combined to make that possible.

The issues that caused mis-selling were designed into the distribution model

Motor finance is usually sold at the point of sale.

The consumer wants a car. The dealership acts as a broker to arrange finance. The lender funds the agreement.

This division of labour is central to why the issues that eventually led to the Financial Conduct Authority (FCA) commencing an investigation on 11 January 2024 persisted.

From the consumer’s perspective, the dealership is ‘the finance provider,’ because it is the only party with whom they deal directly. From a regulatory and legal perspective, the lender is central, because it designed, enabled and benefitted from the commercial model that determined:

• how the broker was paid;
• whether the broker could influence the interest rate or overall borrowing cost;
• what disclosures were required and how they were framed; and
• how they supervised broker conduct.

This created a structural accountability gap. For example, if a sales process was opaque or misleading, it is easy to see how responsibility may appear to sit with the dealership. Yet lenders typically controlled the levers that made these models profitable and scalable. That separation made it easier for weak disclosure and conflicted incentives to persist without clear attribution to the party with the deepest control over the system.

Consumers were not told what mattered about commission

The core concern identified by the regulator, and considered by the Supreme Court in Johnson, Wrench and Hopcraft, is not that commission exists. It is whether commission and associated conflicts were disclosed in a manner that enabled consumers to make informed decisions.

The three features that the FCA proposes to cover in its redress scheme were particularly influential in facilitating concealment at scale.

Discretionary commission arrangements (DCAs)

DCAs allowed brokers to influence the interest rates offered to consumers and to earn more when the rate was higher, creating an obvious conflict in which the broker could profit by making consumers' borrowing more expensive. Where a consumer did not know that this dynamic existed and was not told about it, they had no reason to challenge their interest rate or question whether the broker was acting independently.

High commission models

Even where commission was not linked to the interest rate, commission could still be excessive. In practice, the consumer still pays this commission through the overall cost of credit. If the consumer did not know how much commission was built into their cost, they cannot assess whether they are getting a fair deal or if the broker’s recommendation is compromised.

In its redress proposals, the regulator defines a high commission as 35% of the total cost of credit and 10% of the loan amount.

Tied arrangements presented as ‘choice’ or independence

Consumers were often given the impression they were being offered a range of lenders, when in reality the dealership was contractually tied to a lender by an exclusivity or near-exclusivity deal, or subject to a right of first refusal. If consumers are told, explicitly or implicitly, that brokers are independent or that they choose from a panel of lenders, the absence of genuine choice can amount to mis-selling if a misleading impression of independence or breadth of choice is created.

In each of these scenarios, the failure to disclose this information is material, not trivial. It goes to the heart of whether consumers can:

• make informed decisions about price;
• assess alternative options; and
• understand why a broker is recommending a specific product or lender.

Product complexity and consumer focus on the monthly payment reduced scrutiny

Motor finance is predominantly marketed as a way to drive a nicer car for a manageable monthly figure. This is particularly true for personal contract purchase (PCP) agreements, where the structure can make the headline monthly payment feel more salient than the total cost of credit.

Several features of motor finance reduce the likelihood that consumers will challenge or ask questions.

Complex pricing mechanics

It is difficult to compare and assess the impact of variables such as flat interest rates, APRs, deposits, balloon payments, fees, and other add-ons in a showroom environment.

Time pressure

Vehicle purchases are typically concluded quickly, with the financial elements often treated as a transactional necessity rather than a major borrowing decision for the consumer.

Behavioural anchoring

As in the marketing of motor finance, dealers can anchor consumers to the monthly payment as the primary measure of affordability, even when an undisclosed commission has inflated the interest rate and the total cost of credit.

Information overload

Documents can be lengthy and technical, which can disguise what is missing just as effectively as they disclose what is present, particularly when dealers read only specific sections of agreements out loud.

Where a system depends on consumers detecting non-disclosure, this complexity is an enabling condition of the conduct that occurs.

Consumers cannot complain about what they do not know

A striking feature of commission-based mis-selling is its self-concealing nature.

Most consumers did not know:

• that the lender was paying the broker;
• that the broker’s remuneration could increase if the consumer paid a higher rate; or
• that the ‘choice’ they were being presented might not be genuine.

A consumer cannot question or complain about these factors if they are unaware of them. If consumers do not complain, the problem and its scale do not become visible, and the incentives to fix it weaken or do not exist at all. This lack of transparency not only obscured the cost of credit but often masked whether the lending was responsibly affordable in the first place, and created a market in which mis-selling could be under-reported and under-challenged for long periods.

The impact of the concealment of these factors is also apparent in the FCA’s redress proposals and the practical barriers they may cause for some mis-sold consumers:

• Consumers often do not have their paperwork, particularly for older agreements.
• Lenders may no longer retain records for agreements that concluded more than six years ago.
• Lenders hold the key data, including about commission structures and the nature of any contractual ties.
• Record-keeping issues, staff turnover, dealership closures, and changing contracts make it difficult to establish and reconstruct what happened at the point of sale.

Regulatory change is slow, and the market continued to operate during the time lag

It is vital to distinguish between:

• the legal duties that existed, including the unfair relationship provisions under the Consumer Credit Act (CCA) 1974; and
• the speed with which the motor finance market was forced to align with those duties in a way that was visible and enforceable.

The long timeline matters because the regulator’s work on motor finance developed over several years:

• early warning signals and analysis of the PCP market emerged in July 2017, well before the FCA commenced its most recent investigation into the motor finance sector on 11 January 2024;
• this earlier work and regulatory action culminated in DCAs being banned from 28 January 2021; and
• further scrutiny and court judgments focused on whether other commission structures and tied arrangements continued to cause consumer harm after the DCA ban.

In the space between ‘concerns identified’ and ‘clear, enforceable outcomes,’ the practices and incentives that drove mis-selling continued. This gave lenders time to adjust their conduct, reframe disclosures, and shift to different models, without necessarily resolving the underlying conflict and transparency problems.

What may have appeared to be a slow-moving regulatory response, owing to the volume of data the FCA needed to collect and analyse, does not mean that broker and lender conduct was acceptable. It means the market was able to continue operating profitably while enforcement boundaries and the extent of any consumer challenge remained uncertain.

Enforcement in a fragmented and high-volume market is challenging

Motor finance is a mass consumer market, and the number of agreements is vast. The regulator says it used data from around 32 million agreements in its investigation. Distribution is decentralised, and practices vary across lenders and dealerships over time. This reality would create an enforcement problem even for the most engaged regulator.

A regulator can:

• ban a practice, such as the use of DCAs, prospectively;
• issue guidance to firms and consumers;
• set disclosure standards and require firms to meet them; and
• pursue enforcement actions in egregious cases.

What is more challenging is identifying, evidencing, and remediating historic misconduct across millions of individual transactions—in the case of the FCA’s proposed redress scheme, an estimated 14.2 million of them. Most notably, the decisive facts that determine whether misconduct occurred often sit in internal commission frameworks and dealer-lender agreements, not in consumer-facing documentation.

These difficulties help demonstrate why the regulator is proposing an industry-wide redress scheme that can deliver scale and consistency. The trade-off is that it may standardise outcomes while still leaving consumers with limited ability to verify calculations unless they have representation or the lender provides unusually clear disclosures.

Legal uncertainty persisted until test cases and appellate decisions created clarity

Even where consumers suspected unfairness, many would have struggled to know whether they had been mis-sold or had a valid claim. While the unfair relationship provisions outlined in the CCA 1974 provide a meaningful route to challenging unfairness, the outcome in any individual case depends on fact-specific analysis, and a series of developments over time established the claims landscape:

• Financial Ombudsman decisions DRN-4188284 and DRN-4326581 on commission disclosure and unfair relationships initially made it difficult for lenders to dismiss complaints as mere technicalities.
• Litigation in the Johnson, Wrench, and Hopcraft test cases established legal principles and precedents regarding commission and broker relationships.
• The Supreme Court’s judgment in the test cases, handed down on 1 August 2025, overturned some of the Court of Appeal’s 25 October 2024 ruling, including aspects of the fiduciary duty analysis. However, it confirmed that an unfair relationship finding can still follow on the facts where the broker relationship, non-disclosure and the scale of commission combine to undermine the fairness of the relationship to the consumer.

These developments, and the regulator’s redress proposals, significantly narrowed the grey area in which mis-selling can persist. That is one of the many reasons why we have seen escalations in public arguments and increases in the sums lenders have set aside to pay redress since the Court of Appeal’s ruling on 25 October 2024.

Lenders profited while the costs were dispersed and delayed

Mis-selling on the scale the FCA estimates is sustained by incentives, not by misunderstanding.

The economics are straightforward:

• Inflated interest rates and excessive commissions increased revenue for both brokers and lenders.
• Consumers would generally not have detected price inflation if there had been inadequate disclosures and the primary sales anchor had been the monthly payment.
• Complaints, if and where they occurred, were individually small compared to lenders’ aggregate gains.
• Even now that redress payments have become likely, this has happened years after the event, after the lender has had the benefit and use of the money.

The latter point is one reason why the compensatory interest debate is so contentious. The interest rate applied to redress determines whether consumers will be compensated almost only for the principal overpayment or also for the time value of money they were deprived of.

Lenders got away with it because it was easy to hide and hard to challenge

That is the core answer, and the conditions we have described here are precisely why the FCA is proposing a structured redress scheme. As well as serving as a historical lesson, this saga should serve as a warning about how misconduct can persist when incentives are conflicted, disclosures are weak, and consumers are expected to make informed decisions about fairness without access to all relevant facts.

Register your motor finance claim with Harcus Parker

While the regulator’s redress proposals mean you will be able to bring a motor finance claim yourself and at no cost, there are several compelling reasons why you may wish to instruct a solicitor to do so on your behalf.

If you would prefer to utilise the expertise of a professional representative to bring your complaint, you can register your claim with Harcus Parker here.