Car Finance Complaints Hit All-Time High as Mis-Selling Scandal Grows – What Drivers Need to Know

Thousands of drivers across the UK could soon receive car finance compensation after it came to light that many car finance deals were built on undisclosed commissions, leaving customers unknowingly overpaying for their loans.

Experts have already drawn comparisons to the PPI mis-selling scandal, which resulted in billions being paid back to consumers. Now, some believe this latest car finance controversy could land banks and lenders with a compensation bill as high as £44 billion — a figure that would place it among the biggest financial scandals the country has ever seen.

What’s Behind the Scandal?

At the centre of the row is a sales tactic called discretionary commission arrangements. In simple terms, this gave car dealers the power to set the interest rates offered to customers taking out finance.

The catch? The higher the interest rate, the more commission the dealer earned from the lender. Crucially, most customers were never told this was happening. Many drivers thought the rate they were offered reflected their credit rating or the lender’s general pricing — not the dealer’s desire to boost their own earnings.

This conflict of interest became so serious that the Financial Conduct Authority (FCA) stepped in and banned the practice in January 2021, describing it as inherently unfair.

Complaints Flood in as Legal Pressure Mounts

Although the practice was banned in 2021, car finance complaints continued to mount — and by late 2024, the full scale of the issue started to emerge. Between September and December 2024, the Financial Ombudsman Service (FOS) logged 18,658 complaints relating to car finance deals. For the first time ever, car finance commission complaints outnumbered those about credit cards.

The legal landscape shifted too. In October 2024, the Court of Appeal ruled that finance agreements where commissions were undisclosed could be deemed unfair and potentially unenforceable. In plain English, that meant thousands of affected drivers could have a legal right to car finance compensation, adding even more pressure on lenders.

Some analysts believe the final compensation bill could range from £30 billion to £44 billion, depending on how many drivers pursue car finance claims.

Banks Already Preparing for the Worst

With billions potentially at stake, some of the UK’s biggest lenders are already building up financial cushions to cover future payouts.

• Lloyds Banking Group has more than tripled its compensation fund, setting aside £1.2 billion.
• Close Brothers Bank, another key player in car finance, has put aside £165 million to deal with investigations and expected refunds.

This isn’t just a small-scale issue — this is a full-scale financial storm brewing for lenders.

How Much Could Affected Drivers Get?

If you were caught up in this — and your car finance deal involved undisclosed commissions — the amount of car finance compensation you could claim depends on several factors:

• Hidden Commissions: If your contract didn’t clearly disclose that the dealer was earning a commission, your deal could be considered unfair.
• Higher Interest Rates: Because dealers had an incentive to set higher rates (to pocket more commission), many customers ended up paying far more than they would have done with a transparent deal.
• Lack of Affordability Checks: In some cases, finance was approved without proper checks to see whether the loan was affordable, which also breaches FCA rules.

The Financial Ombudsman Service will look at each case individually, considering the agreement terms, the commission structure, and how it all affected you financially.

How to Check if You’re Eligible

If you took out car finance between 2007 and 2021, you might be owed money — but it’s up to you to check and take action. Here’s how to get started:

• Find Your Paperwork: Look for your car finance contract, as well as any letters or emails you received from the dealer or lender.
• Check for Clues: See if there’s any mention of commissions or whether the dealer set your interest rate. If this information was missing, your case could be stronger.
• Contact Your Lender: Write to your lender explaining why you believe your agreement was unfair or mis-sold. Be clear and include copies of any relevant documents.
• Take It Further if Necessary: If your lender rejects your car finance claim — or doesn’t respond — you can escalate it to the Financial Ombudsman Service, which offers a free and impartial review.
• Consider Legal Support: If your case is particularly complex — or the amount involved is large — you might want to speak to a solicitor specialising in financial mis-selling.

What Are the Government and Regulators Saying?

It’s not just drivers and banks paying attention. The UK Treasury has now asked to intervene in a key Supreme Court case, warning that the potential size of compensation payouts could threaten wider financial stability.

Meanwhile, the Financial Ombudsman Service has announced that from 1st April 2025, it will revise its fee structure to help manage the surge of car finance complaints — especially those being filed by claims management companies (CMCs).

The goal is to strike a balance: keeping the claims process accessible for drivers with genuine cases, while discouraging frivolous claims that could overwhelm the system.

What This Means for Drivers

If you bought a car using finance between 2007 and 2021, you could be entitled to compensation worth thousands of pounds — particularly if your dealer set the interest rate and failed to tell you they were earning commission on the deal.

This isn’t just about refunds — it’s a wake-up call for the entire car finance industry. As more drivers come forward, lenders and dealers will be under huge pressure to clean up their processes and make sure future deals are transparent, honest and fair.

Think you might have been mis-sold your car finance? Now’s the time to dig out your paperwork and start asking questions. That refund could be yours — but only if you take the first step.