Why lower-income consumers may miss out on motor finance compensation

Analysis of the Financial Conduct Authority’s (FCA) motor finance redress scheme has highlighted that approximately 1.1 million agreements may fall outside the scheme due to the regulator’s minimum commission thresholds. Under the final rules, published in Policy Statement PS26/3 on 30 March 2026, agreements will be considered fair if the commission was:

• £120 or less for agreements beginning before 1 April 2014; or
• £150 or less for agreements beginning on or after 1 April 2014.

The FCA’s reasoning is that commission at or below these levels is unlikely to have influenced the broker’s behaviour or the consumer’s decision to accept a finance offer. That may be a practical approach for a large-scale redress scheme, but it risks excluding consumers who borrowed smaller amounts because they were buying cheaper cars and had limited financial flexibility.

For households in this position, a relatively small sum may still have mattered.

The problem with judging harm by commission alone

A £150 commission on a high-value car finance agreement may be insignificant, but the same amount on a smaller loan used to buy a cheap second-hand vehicle may matter far more.

Lower-income drivers may be less likely to finance a newer or more expensive vehicle. For many, borrowing may have been necessary because they needed a car for work, childcare, caring responsibilities, or basic mobility, and because buying outright was not realistic.

In this context, even a small increase in the total cost of finance may have put further pressure on a household budget that was already stretched.

Cheaper cars do not mean lower financial need

Buying and financing a cheaper vehicle does not necessarily mean the borrower was less affected by mis-selling. In many cases, the opposite may be true. A person financing a lower-value vehicle may have had little or no savings buffer, limited access to affordable credit, and less capacity to absorb an inflated monthly payment.

If they had a weaker credit rating, any additional borrowing needed to meet everyday costs may also have been more expensive. The FCA recognises this issue in PS26/3, which highlights the cost of unsecured borrowing for £5,000 and £10,000 personal loans between 2007 and 2024. Although the 3% floor on compensatory interest is an improvement on the original proposals in Consultation Paper CP25/27, the FCA’s data also shows that this floor may still fall below the borrowing costs many affected consumers actually faced.

The real-world effect of being overcharged may therefore have extended beyond the motor finance agreement. It may have shown up as overdraft charges, revolving credit card balances, missed bills, rent, mortgage or council tax arrears, damage to a credit file, payday borrowing, or wider borrowing cycles that might not otherwise have started.

The regulator's redress scheme may compensate for defined overpayments, but it may not account for the wider financial consequences of misconduct.

The redress scheme may not fully address consequential loss

Consequential loss is financial loss that results from the original wrongdoing. In a motor finance context, this may include additional borrowing costs, arrears, fees, or other losses arising from an unfairly expensive agreement.

This is particularly relevant for lower-income households, which are less likely to have a financial cushion. A household with savings may be able to absorb an unfairly high payment; a household already close to its limit may not.

Although the FCA’s 3% compensatory interest floor is an improvement on the proposals in CP25/27, removing the proposed route for consumers to provide evidence of consequential loss is another factor likely to affect lower-income households disproportionately. It may make the scheme easier for lenders to administer. However, it also means consumers whose real borrowing costs were higher than the compensatory interest rate may not see that reflected in their redress award.

For households that had to rely on expensive credit because unfair finance costs drained their budgets, this is a significant shortcoming in the final redress rules.

The link between lender misconduct and household pressure

The impact of car finance mis-selling cannot be assessed only by asking whether the consumer received the vehicle. This has been one of the more persistent arguments made by lenders in their own defence: that the consumer knew the monthly payment, accepted the agreement, and drove away with the car they wanted.

The problem with that argument is that it ignores what the customer was not told. If a consumer was not told that their car dealer was financially incentivised to place them into a more expensive agreement, or that a contractual tie affected the lender they were offered, they did not have the information needed to make a fully informed decision.

For financially stretched households, the consequences may have been acute, particularly where the vehicle was essential. A July 2025 Institute for Public Policy Research report, The Transport Challenge for Low-Income Households, found that the lowest-income households with a car spend, on average, £76 a week, or £3,952 a year, on it. That is equivalent to a quarter of their income.

This explains why car finance mis-selling goes beyond disputes about commission disclosure. For many households, the monthly finance payment sat alongside rent or mortgage payments, council tax, utility bills, food, childcare, insurance, and other unavoidable costs. Consumers could not simply stop paying because the agreement was too expensive. Losing access to the car may have meant losing access to work, family support or childcare, while falling into arrears or default may have damaged their credit file. The pressure had to be absorbed elsewhere.

Why affected consumers may still need to act

The low commission threshold in the regulator’s redress scheme shows why consumers should not assume that an agreement outside the scheme raises no wider issues. An agreement excluded by the threshold in PS26/3 may still raise questions about affordability, irresponsible lending, or the sale of add-on products such as GAP insurance and cosmetic cover. Similarly, consequential loss will not be fully captured within the scheme.

The distinction matters because the FCA’s scheme is designed to compensate people who fall into defined categories of unfair treatment as consistently as possible, not to cover every issue that may arise from a broader investigation. That makes the scheme valuable, but it also means it has practical limitations.

What legal challenges to the scheme mean for consumers

The FCA scheme has been challenged by Consumer Voice, which argues it is too favourable to lenders, and by three lenders: Volkswagen Financial Services, Mercedes-Benz Financial Services, and Crédit Agricole Auto Finance. The regulator has removed anticipated payment dates from its guidance while it awaits clarity on the Upper Tribunal's timeline to hear the four challenges.

In practical terms, the challenges mean that compensation payments are unlikely to begin before 2027. FCA chief executive Nikhil Rathi also said in June 2026 that some firms were exploring whether they could make settlement offers on complaints that would otherwise have been dealt with through the scheme. The uncertainty does not remove the need for consumers to act if they are concerned. The regulator has repeatedly encouraged consumers to complain directly to their lender, and the current redress rules prioritise consumers who have already complained.

A fair scheme should not overlook those least able to lose out

The FCA deserves credit for investigating historical misconduct in the motor finance sector and formulating its redress scheme. It is an important intervention that should help many consumers recover at least some of the money they should never have lost.

However, the decision to set these low commission thresholds exposes a difficult question: when assessing fairness, should the focus be only on the size of the commission, or should the effect on the person who paid it also be considered?

For higher-income consumers, discovering they paid a small, undisclosed commission and will not receive redress may be frustrating, but it may not be financially material. In contrast, the same commission may have contributed to a missed payment, an overdraft, credit card borrowing, or a decision to cut back on essentials for lower-income households. For those households, being excluded from redress may mean losing a chance to repair at least part of the damage, especially if they are still dealing with consequential loss or other issues linked to unfair finance costs.

Register your motor finance claim with Harcus Parker

The FCA’s redress scheme means you can bring a motor finance complaint yourself and receive any compensation you are due at no cost.

However, the scheme’s thresholds, exclusions and standardised calculations may not fully reflect your circumstances, particularly if you are on a lower income, had a low-value agreement, or suffered financial consequences beyond the finance agreement itself.

Harcus Parker can help identify your historical motor finance agreements, contact your lenders, manage your complaint, review lender responses, and consider whether you may have grounds to bring additional claims outside the FCA’s redress scheme, including claims linked to irresponsible lending, consequential loss, or related add-on products.

If you have not yet made a motor finance complaint and would like professional representation, you can register your claim with Harcus Parker here.