FCA Nears Decision on Car Finance Redress Scheme – Millions of UK Drivers Could Receive Refunds

Supreme Court Ruling Could Unlock Billions in Compensation

Millions of UK drivers who may have been unknowingly overcharged on their car finance agreements could be in line for automatic compensation. The Financial Conduct Authority (FCA) is moving closer to finalising a redress scheme that could see refunds issued to affected borrowers without requiring them to submit a claim. If approved, the total compensation could reach up to £44 billion.

The FCA has been investigating whether car finance lenders and dealerships failed to disclose commission arrangements that led to inflated interest rates for customers. According to the regulator, "If motor finance customers have lost out from widespread failings, we are likely to consult on a redress scheme."

A Supreme Court ruling in April 2025 will play a key role in shaping the FCA’s response. Depending on the outcome, the regulator may extend compensation to all affected borrowers or limit it to specific cases.

Why Could Borrowers Be Owed Money?

The FCA’s investigation has revealed two major ways in which customers may have been mis-sold car finance.

1. Hidden Interest Rate Increases (Discretionary Commission Arrangements – DCAs)

Between 2007 and 2021, many car dealers and brokers had the power to increase interest rates on finance deals without informing customers. The higher the interest rate, the more commission the dealer received—meaning many motorists ended up paying far more than they needed to.

2. Hidden Commission Charges – Could Your Car Finance Deal Have Been Unfair?

Back in October 2024, the Court of Appeal ruled that car finance lenders who kept commission payments under wraps may have issued agreements that weren’t legally sound. Put simply, if you took out a car finance deal, there’s a strong chance you weren’t told that a chunk of what you were paying each month was quietly lining someone else’s pocket.

It’s now believed that as many as 99 per cent of car finance agreements may have included these undisclosed commissions, meaning millions of UK drivers could be owed refunds. This isn’t about minor technicalities—it’s about borrowers unknowingly being charged more than they should have.

The Supreme Court will review this ruling in April 2025. Its decision will determine whether the FCA’s redress scheme will apply only to Discretionary Commission Arrangements (DCAs) or extend to all car finance agreements where commission payments were hidden from customers.

What Happens Next?

The FCA is waiting for the Supreme Court’s decision, expected between 1-3 April 2025. The regulator has been granted permission to intervene in the case, meaning it will have a say in shaping the final outcome.

Once the ruling is made, the FCA will decide within six weeks whether to launch a compensation scheme. An announcement was initially expected in May 2025, but this has now been pushed back to June 2025.

How Would the Compensation Scheme Work?

If introduced, the FCA’s redress scheme would be one of the largest financial compensation efforts in UK history. It aims to ensure that affected customers are refunded fairly and efficiently, with lenders responsible for identifying eligible borrowers and processing refunds.

Here’s how the scheme could work:

• Lenders would be responsible for identifying affected customers and issuing refunds.
• Compensation would be automatic, meaning borrowers would not need to submit a claim.
• The FCA would set strict rules to ensure fair and consistent payouts.

It’s estimated that individual refunds could range between £1,100 and £1,140, while the total amount refunded could exceed £40 billion—making this one of the largest consumer compensation schemes since PPI.

Will You Need to Make a Claim?

The FCA has suggested that an automatic redress scheme would make the process simpler for consumers and more efficient for lenders. This means most borrowers won’t need to submit complaints, as lenders will be required to contact and compensate those affected.

However, if you want to ensure you receive the full compensation amount you’re entitled to, some borrowers may choose to seek expert guidance from claims management companies.

Banks Already Setting Aside Billions for Refunds

With large-scale payouts becoming more likely, some of the UK’s biggest banks and finance providers are already preparing:

• Lloyds Banking Group has set aside over £1 billion to cover potential compensation claims.
• Close Brothers has allocated £165m for payouts.

Industry analysts predict that total lender compensation could exceed £40bn if the Supreme Court upholds the Court of Appeal’s decision.

If the FCA moves forward with a full compensation scheme, the car finance sector could be facing one of the biggest financial settlements in UK history.

What Could the Supreme Court Decide?

The FCA has outlined three possible outcomes once the Supreme Court delivers its ruling in April:

1. A Limited Redress Scheme (Most Likely Outcome)

The Supreme Court overturns the Court of Appeal ruling, meaning compensation would only apply to DCA-related cases—where interest rates were unfairly increased without the customer’s knowledge.

Even in this scenario, payouts could still total tens of billions of pounds. However, many borrowers who were affected by hidden commissions alone may not be eligible for refunds.

2. A Full Redress Scheme Covering All Cases (Possible Outcome)

The Supreme Court upholds the Court of Appeal ruling, meaning all car finance agreements with undisclosed commissions could be eligible for refunds.

3. No Compensation at All (Unlikely Outcome)

The Supreme Court rejects all claims, meaning no compensation would be issued. However, this scenario is considered highly unlikely, given the FCA’s strong position on DCAs and the growing legal pressure for consumer refunds.

What Should Borrowers Do?

If you borrowed car finance between 2007 and 2021, you could be entitled to car finance compensation. But you don't have to act immediately—if the FCA does proceed with a redress scheme, lenders will be asked to contact affected customers directly.

For individuals who would like expert advice, claims management companies can assist in dealing with the claims process and making sure that borrowers are properly compensated. A few consumers might find this to be a valuable alternative, especially if they wish to make sure their case is dealt with quickly.

As the FCA’s decision approaches, staying informed will be key for anyone who has taken out car finance in the last two decades.

Key Dates to Watch

• 1-3 April 2025 – Supreme Court hearing on the appeal.
• June 2025 – FCA decision on redress scheme expected.

The potential refund of billions of pounds in this case may transform the UK car finance sector. A Supreme Court decision that supports borrowers may result in one of the biggest financial settlements ever recorded in the UK.