It has been over eight years since the Financial Conduct Authority (FCA) first set out plans to analyse the motor finance sector in its 2017/18 Business Plan, subsequently commencing work during the summer of 2017.

After publishing an update on its work in March 2018 and a final report 12 months later, the regulator then consulted on banning discretionary commission models in October 2019, before confirming the ban in July 2020.

The ban on discretionary commission arrangements (DCA) came into effect on 28 January 2021 but it was not until January 2024 that the regulator announced it would undertake further investigatory work in the motor finance market and the historic use of discretionary commissions, responding to the volume of complaints about their use and two Financial Ombudsman Service (FOS) decisions in favour of complainants (DRN-4188284 and DRN-4326581) led in January 2024.

The FCA’s investigation, coupled with car finance claims being dealt with through the courts, culminated in August’s Supreme Court rulings in the Johnson, Wrench, and Hopcraft test cases, bringing us to the current position and the FCA’s proposed redress scheme, which several lenders have vociferously opposed.

Central to many arguments are the questions of what harm was actually done to consumers and whether mis-selling even occurred, which are part of a broader narrative often used to position financial misconduct as a victimless technicality.

Who are the victims of car finance mis-selling?

Mis-selling and the “victimless” fallacy

Financial misconduct – specifically, in this instance, car finance mis-selling – is not a simple technical dispute over numbers and contractual terms. It is a story of systemic misconduct that has created millions of individual victims and inflicted tangible, widespread harm to the individuals who were misled and their families, as well as eroding the trust in institutions on which the UK economy relies.

That is why we challenge the assertion of some lenders, as for example expressed by the Chief Executive of Lloyds Banking Group to the Treasury Select Committee in May 2025, that there is “no evidence of harm” to consumers as a result of car finance mis-selling.

What is the scale of the harm done?

The regulator’s redress scheme consultation paper (CP25/27) outlines the scale of car finance mis-selling, refuting the idea that this is a niche or trivial issue by highlighting that an estimated 14.2 million car finance agreements were mis-sold between 6 April 2007 and 1 November 2024 and that mis-sold consumers will be due an average compensation payment of “around £700 per agreement.”

How car finance mis-selling harmed consumers

Further highlighting the seriousness of this matter is the FCA’s disclosure of the three primary ways in which mis-selling occurred, all of which it addresses in its redress proposals.

(1) The hidden additional costs charged through inflated interest rates

This happened in two ways:

• Through the use of DCAs, where redress is due on an estimated 11.4 million agreements. DCAs allowed car dealers acting as car finance brokers to set or influence the interest rate offered to the customer, with their commission increasing in line with the rate agreed. This created a clear conflict of interest, as car dealers were incentivised to push consumers towards accepting a higher rate rather than offering the best rate available or a range of rates and products.
• Due to excessive commissions, which the FCA estimates cover 2.9 million agreements. In its consultation paper, the regulator deems commission excessive if it is 35% or more of the total cost of credit and exceeds 10% of the total loan amount.

(2) Lack of choice and competition

The regulator also estimates that redress is due on 3.2 million car finance deals involving 'Tied Agreements.'

Tied Agreements refer to arrangements between car dealers and lenders that are either exclusive or near exclusive, often giving lenders the right of first refusal, for example. Mis-selling occurred in these situations if a car dealer misled a consumer into believing they were choosing from a panel of lenders, when in reality only one lender was available, or if the car dealer, acting as a broker, pushed the consumer towards using a particular lender despite providing their customer with documentation outlining their 'independence.' The result is unfairly high prices.

In these situations, car dealers acting as brokers actively steered consumers into uncompetitive agreements that served the dealer's interests rather than their own.

(3) Misleading sale of “essential” add-ons

Another significant issue is that in many cases, it may not have been just the car finance agreement that was mis-sold or to which excessive and undisclosed commissions were applied, or where consumers were only given the ‘choice’ of one product or provider.

The same practices may or may not have also been applied to products such as GAP insurance, as well as other common add-ons including cosmetic, alloy and tyre damage insurance. In a September 2023 press release, the FCA said that it had ‘seen examples of some firms paying out up to 70% of the value of insurance premiums in commission to parties in the distribution chain, such as motor dealerships.’

Similarly, a 2019 Car Dealer Magazine report cited an FCA finding that dealerships received an average commission of 54% on the sale of scratch and dent insurance products.

Most significantly, all of these inflated premiums were often ‘rolled up’ into consumers’ finance agreements, creating twofold harm: not only did consumers pay an inflated premium, but they also paid interest on the commission itself for the duration of their agreement.

Learn more about GAP insurance mis-selling and the potential to bring other alternative claims.

How car finance mis-selling affected daily life

This financial harm was not simply confined to a spreadsheet. In many cases, it had devastating, real-world consequences for individuals and their families, many of whom may continue to feel the financial effects of mis-selling for many years to come. Nobody should overlook this widespread harm.

Potential irresponsible lending

The hidden and undisclosed commission may have been the very thing that made a car finance agreement unaffordable, raising critical questions:

• how many of the 14.2 million agreements the regulator says were mis-sold should have been deemed as ‘irresponsible lending’, either before or after commissions and inflated interest rates were factored in? and
• what checks did car dealers undertake to ensure that car finance was affordable and suitable for their customers’ personal circumstances?

Beyond the issue of irresponsible lending, there are also questions about how many customers would have accepted the offer of finance had they known that cheaper options were available, that interest rate inflation had been applied via a hidden commission, and that they had not been made aware of the true cost of the agreement.

Personal debt spirals

A vehicle is often essential for work and family life, not to mention the additional lifestyle advantages of maintaining social connections and being able to enjoy leisure pursuits, both of which are vital for both physical and mental well-being. These realities, as well as their obligations under the credit agreement, mean that a consumer locked into an unfairly expensive car finance agreement could not have simply decided to stop paying.

Instead, what happened was that their inflated car finance payment led them to make sacrifices elsewhere, often adversely impacting other vital, priority obligations. The financial pressure caused by car finance mis-selling was potentially a direct cause of personal debt spirals, in which individuals and families were left to choose between their car payments and paying their mortgage, rent, council tax, utility bills, or other debts - or taking out other credit products to meet their obligations.

All of this can add up and lead to adverse credit events, damaging an individual's credit file for years, which can have far-reaching impacts, such as potentially locking them out of the market for lower interest rates and, in some cases, for certain financial and credit products entirely.

Psychological and emotional impact and harm

There is an inextricable link between problem debt and mental health: the Money Advice Trust’s National Debtline service says that 50% of adults who are struggling with debt also have a mental health issue.

The financial stress and hassle of dealing with these issues, and the impact they have on the rest of a person’s life due to the constant mental burden, can inflict profound psychological and emotional distress. Sadly, this does not necessarily end once a consumer brings a car finance complaint against their lender; it may continue even after bringing their claim.

That is because, after lodging their claim, consumers may be left facing daunting 'legalese', uncooperative lenders who believe they did nothing wrong, the complexity of the regulator's redress proposals, and a fundamental power imbalance between themselves and the lender and their legal team. There is a genuine risk in such cases that harm can persist during the consumer's efforts to put right the damage they have suffered.

This is one of the many reasons why hiring a solicitor to manage the process and ensure accountability may be attractive to consumers, even if it means paying a fee.

The unseen impact and the harm to wider society

What we have described so far is the impact of just one individual being overcharged. Multiply that by the millions of motorists that the FCA believes have been mis-sold, and it is clear that the consequences extend far beyond what the headlines often tell us. There remains an untold story about the unseen impact of car finance mis-selling and the deep and lasting damage it has caused, and may continue to cause, to the UK economy and its institutions.

A drain on the “real” economy

Many lenders caught up in car finance mis-selling and facing significant redress bills, including Santander, have claimed that having to pay compensation to consumers could harm the UK economy. This argument ignores the damage already done and that occurred during at least the period covered by the regulator’s redress scheme: 6 April 2007 to 1 November 2024.

Car finance mis-selling did not just see money moving from consumers’ pockets to lenders’ pockets. The billions of pounds paid in excessive and undisclosed commissions and interest, from which the lenders ultimately profited, were drained from the “real” economy. That is money that individuals and families could not spend in local shops, on services, on leisure pursuits, or to support their communities. The scandal has effectively acted as a quiet, long-term drag on the country’s economy for over a decade.

This current debate over the proposed rate of compensatory interest payable on redress further highlights the imbalance in favour of lenders. The FCA proposes to set this rate at a likely average of 2.09%, calculated on a simple rather than compound basis, saving lenders billions compared to the traditional compensatory interest rate of 8% calculated on a compound basis.

However, the real issue here is that, while lenders continue to argue that the cost of redress is punitive and make other proclamations about the broader economic risks of having to compensate their customers, it is vital to remember that those same lenders have benefited from using their customers' money for years. They have been able, for example, to leverage those funds to lend back to customers – perhaps, in some cases, even the same customers that had car finance with them – and often at high interest rates. Even after paying redress, many lenders are likely to have profited from holding this capital, while depriving their mis-sold car finance customers of its use.

The continuing erosion of institutional trust

Like the PPI scandal, the impact of which is still reverberating among both lenders and consumers, this matter has had a significant adverse effect on all involved and has seriously eroded the public's trust and confidence in our institutions.

• Banks and non-bank lenders have once again been shown to have acted in bad faith, prioritising profit over their obligations to treat customers fairly.
• The motor industry has taken a significant reputational hit, reinforcing widespread perceptions about car dealers, even before we consider their role in mis-selling as car finance brokers.
• The FCA will be subject to serious scrutiny and questioning, which, in many respects, is regrettable, as in our view there has been much to admire about the regulator's response to the scandal.

Questions currently being asked of the FCA include those from the All-Party Parliamentary Group (APPG) on Fair Banking, which in a November 2025 report titled Car Finance Scandal: Assessing Redress accused the regulator’s redress proposals of ‘nakedly taking the side of lenders,’; and it is of significant concern that the ‘lender-led’ nature of the redress scheme means that the FCA is effectively asking consumers to trust the lenders that deceived them for many years.

Other criticism stems from issues such as whistleblowers highlighting that car finance mis-selling was an issue as early as 2016, and the regulator itself conducting analysis and investigations as long ago as 2017, yet only launching a formal investigation into historical DCA use in January 2024 and only now proposing a formal redress scheme. We do not endorse that criticism: working within the practical constraints in which it has to work, the FCA has clearly tried to ensure that consumers are paid at least something. But in our view they deserve more.

The lenders’ case in their own defence

During the course of the FCA’s investigation and particularly since October 2024, when the Court of Appeal’s ruling in the Johnson, Wrench and Hopcraft test cases made it clear that lenders were likely to face significant redress liabilities, lenders have presented several arguments in their own defence on top of the now familiar refrain that having to pay redress will lead to damage to the economy, including:

• That they were complying with the rules as they were in place at the time. As DCAs were only banned in January 2021, lenders may argue they were operating within the regulatory framework at the time the agreement was entered into. However, the FCA’s investigation centred on whether lenders were indeed complying with those regulations and whether the presence of a DCA and commission was disclosed.
• That customers got the car they wanted and knew what they were paying. This is demonstrably not true, as commission was deliberately hidden in car finance agreements, or consumers were not aware of the presence of a tied agreement.
• That customers suffered no actual financial loss. Some lenders could argue that customers did not suffer any actual loss if they were or would have been unable to get a lower interest rate from another lender anyway.

• That the country needs a functioning car finance market. The country indeed needs a functioning car finance market, not least so that people can contribute and participate in various aspects of life as we detailed earlier. However, how can a market be considered 'functioning' or 'functional' if its very foundation is secretly and systematically overcharging millions of customers over many years?

Car finance mis-selling has been a damning affair that demands accountability

Car finance mis-selling has created a cascade of victims:

• Overcharged consumers
• Families who suffered through debt spirals and their consequences
• Individuals who experienced a severe psychological and emotional toll
• Society and consumer confidence, damaged by the loss of trust in lenders, the motor trade, and regulatory bodies that are mandated to prevent such misconduct

The purpose of the regulator's redress scheme should not be merely to return money to mis-sold consumers. It must be an essential first step in correcting a systemic wrong, which is why the FCA's proposals leave many questions and concerns that a lender-led approach may not deliver proper accountability and justice.

A positive outcome requires lenders to be held to account. Instructing a solicitor to pursue your car finance mis-selling claim ensures that you have an expert on your side who can challenge lenders’ calculations, investigate the potential for you to bring additional claims like irresponsible lending, and ensure you receive the compensation you deserve.

Achieving all of these points is the only way to rebuild trust, acknowledge the harm done, and recognise that car finance mis-selling is not a simple technicality.

You can register your car finance claim with Harcus Parker here.