Martin Lewis: £18 billion in car finance compensation likely – are you one of millions due £100s?
The industry regulator has confirmed it'll consult on a redress scheme on hidden car finance commission claims 'by October'. It comes as the UK's highest court has partially overturned a landmark Court of Appeal case. In the meantime, the key message from MoneySavingExpert.com founder Martin Lewis is to not sign up to a claims firm – there are free ways to get complaints in and there's no harm doing so now.
Update: Tuesday 7 October 2025: Regulator the Financial Conduct Authority has published a consultation revealing the details of its proposed car finance mis-selling redress scheme, which could see 14 million people paid, on average, £700 in compensation.
Watch Martin's instant analysis of the scheme in which he explains:
- What the scheme covers.
- The three types of mis-selling.
- What you need to do know if you have (or haven't) submitted a mis-selling complaint.
- Your options if you've already signed up to use a claims firm.
Watch: Martin Lewis – are you one of up to 14 million people due £100s back (and what do you need to do)?
Martin gives his instant summary of the news in the video below (recorded on Sunday 3 August):
Martin Lewis: "Are you one of millions of people likely to be due a share of up to £18 billion of car finance mis-selling compensation that has just likely been announced right now? I'm going to talk you through who it applies to – up to 14 million people. How much per person? Likely high hundreds, but not thousands of pounds. And what you do now? If you haven't already put a claim in, put one in but don't use a claims firm.
"Those are the headlines. Let me take you through the detail...
"The regulator, the Financial Conduct Authority, has just announced that in October it will launch a consultation on car finance mis-selling compensation, much as I predicted after the Supreme Court announcement in my video on Friday.
"That consultation will last six weeks and payouts should come in 2026. Now, none of this is firm, but all of it is very likely to happen. The payouts when they happen will just depend on what type of redress scheme it launches.
"If you're one of those people who've already had a letter saying that your car finance firm, after you complained, won't deal with it until December this year, that will almost certainly now be delayed until next year.
"So, before I get into exactly what this is about, the big question you're asking me is what do I do? So let me read to you what the regulator is saying...
"First of all, if you've already complained, you don't need to do anything else. If you haven't, it says: 'Our advice remains that consumers concerned that they were not told about commission and who think they may have paid too much for the finance, should complain now. We aim to make any scheme easy to participate in without needing to use claims management firms (CMCs) or law firms. Using a CMC or law firm may end up costing you up to 30% in fees of any compensation you receive.'
"That's because the scheme it's looking at doing is that lenders will have to contact you, and there is an issue about whether they have the data, because they have destroyed some of the data and that will be part of the consultation. But lenders will have to contact you and then, either they'll automatically pay you, or you'll have to opt in to a scheme. And that's still debatable. And depends on the timeline. So either way, this will be very simple to do.
"So if you were to use a claims management firm and get an automatic payout, the fact you signed up to them may mean they get 30% of your payout without doing anything at all. And if you've already used one of those firms, then I'm afraid we just don't know what the situation will be going forward. That'll be part of the consultation.
"So how do you complain? Well, you do it yourself and an easy way to do it, three million people already have and loads of them tell me it was easy, is we have a tool that's totally free on MoneySavingExpert, it does a pro-forma template complaint for you. You need to look up 'Discretionary Commission Arrangements Car Finance' on MoneySavingExpert and the tool's in there. I wrote the letter myself so I think it's pretty good.
"Right, now let's get into the detail of what this is all about. Now look, there are two strands of car finance mis-selling and this has all been confused in the reporting.
"There's the stuff the Supreme Court dealt with, in which two of the three types of areas within that were turned down by the Supreme Court. But there's the other one, the longer one, the one most people have complained about that wasn't involved in the Supreme Court decision, although it was on hold, just in case anything in that decision caused a wobbler for 'discretionary commission arrangements'. And that is the main form of compensation that's going to come out of this consultation.
And that... let me explain to you. A discretionary commission arrangement, and these were banned in January 2021. So you're looking at people who got PCP or hire purchase deals before then. If that's you, then this is likely something you need to listen to.
"A discretionary commission arrangement is when you went to a car broker or dealer, and it increased the amount of interest that you were charged to increase its commission without telling you. Now, the big problem with DCAs is that they were hidden. You didn't know you had one. So what the template tool does, the first step is ask: 'Did I have a discretionary commission arrangement?' Of which about 40% of PCP and HP deals before 2021, January 2021 did.
"If you did, then you are likely to get compensation under this scheme. So those of you who've already had a letter back through the template tool saying: 'Yes, you did have a discretionary commission arrangement', you're likely to be paid out.
Now, there are some wobblers in there. So, first of all, you might have had 0% interest, in which case you definitely won’t be paid out because there was no interest or your commission might have been very small, in which case you won't get anything back. Although most people, it's going to be in the hundreds of pounds, and as long as they have the documentation, and that will be a wobbler in this, you are likely to be paid out. So this is all about you.
"Now, there is another type of case as well as DCAs and this is that third element of the Supreme Court case. The third element was about where commissions were manifestly unfair. Now this is far more difficult to define because it's on a case-by-case basis. Effectively it's where the commission was too high. So in the case they looked at, it was 55% of the cost of credit, way, way too much.
"And they didn't disclose it to you properly. And they also may have purported that they were independent in helping you when they were really acting as an agent of the car finance firm, and they didn't comply with the regulations. And also, what type of consumer you are, the more vulnerable you are, the more likely you are to get a payout and it to have been seen as unfair if it was too high. The more sophisticated, the less likely.
"As that's case-by-case, unlike the DCA cases, we don't yet know whether that will be dealt with on a 'they'll contact you and pay you back', or you may have to go through the Ombudsman because that one's more complicated. And I think that's why the timelines have been slowed a bit of how they deal with that.
"So next, how much? Well, if I stick with DCA cases, the maximum you could get back is all the commission. The more likelihood is it will be the difference between what was seen as the standard interest rate and the higher interest rate that you were charged.
"The regulator is saying a payout, of the cost of this to the industry will be between £9 billion and £18 billion, including admin costs, and most people will get back under £950 per agreement. So if you had more than one of these, it could be a combination of those.
"There will be interest added on top because obviously you were mis-sold to put you back in the position, but it won't be what you get through the Ombudsman. It will be less. So it'll be what's called a commercial rate of interest, base rate plus one, so it'll be a simple interest of 3% per year, roughly from when this all happened in the first place. So simple means it doesn't compound.
"What else is on my list here? Oh yeah. What are the wobblers in this? Well, the industry could fight this and it could fight it hard. Now, I would urge people in the industry; this is a fair compromise. You're going to be paying out far less than you would have done had the Supreme Court upheld what the Court of Appeal said. And actually, what we need now is we need consistency, we need transparency, and we need speed, both for the industry and for individuals to get through this.
"So I would hope that the industry doesn't try and throw more legal wobblers to slow the whole thing down. You know we do need to work through this.
"As for whether this will happen, I think yeah, the very high likelihood is many people who had a discretionary commission arrangement where they were charged more interest than they should have been, will get back a chunk of that in the hundreds of pounds at some point in 2026.
"Clearly, it's early days. Clearly nothing is locked in. This is just an explainer on the back of the consultation [announcement] today [Sunday 3 August 2025].
"Way more information in the 'Discretionary Commission Arrangements' article on MoneySavingExpert and we'll be looking at doing something on the unfair commission stuff too. But the consultation isn't coming until October, so this is just a heads up so you know what's going on. I hope that helps. Take care."
Read the transcript of Martin's video in full
There are TWO types of car finance mis-selling being looked at
It's important to note that there are two different types of car finance mis-selling being looked at by the regulator the Financial Conduct Authority (FCA) and the courts:
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Discretionary Commission Arrangements (DCAs) – not a direct part of the Supreme Court case. This applies to about 40% of car finance deals, and is where brokers and dealers could increase the amount of interest they charged customers (without telling them) on Personal Contract Purchase (PCP) and Hire Purchase agreements up to 2021 in order to increase their commission. This hidden commission was obviously problematic.
This is the type of car finance mis-selling that MoneySavingExpert.com founder Martin Lewis has been talking about and suggesting people complain about. If you're one of the over 3 million who have put complaints in through our free tool, then it is very likely it was a DCA complaint. -
Commission Disclosure complaints – the main subject of the Supreme Court case. These are based on the October 2024 Court of Appeal ruling that if car finance agreements didn't tell consumers all details of commission, including the amount (they rarely did), they were unlawful. It applies to up to 99% of car finance cases (including DCA cases).
That ruling has now been largely overturned by the Supreme Court, kiboshing most complaints of this type – though some could still proceed if it's found that the commission arrangement was excessive or the relationship between the dealer and consumer was unfair.
In summary, while Commission Disclosure complaints are all about the courts (and have now largely been shut down), DCAs were about a breach of the FCA regulations (and will likely proceed as before). Yet even on DCAs, the regulator can't act until it has worked through the implications of the Supreme Court's full decision.
What the Supreme Court case was about
The specific case dealt with three related claims, all brought by people who bought second-hand cars on finance through car dealers.
In all three cases, the dealers had arranged the finance on behalf of the customers through a lender. The lenders had then paid the dealers a commission – but neither the lender nor the dealer had explicitly told the customers the full details of this commission.
In its decision handed down on Friday 1 August, the Supreme Court ruled that while car dealers have to act fairly towards consumers, they don't need to take on any special duties to act only in their customers' best interests when arranging finance – in other words, dealers don't have a duty of "single-minded (or undivided) loyalty" to their customers.
The Court also rejected the claim that finance companies had bribed the car dealers. As a result, the fact that the commission was fully or partially hidden was not enough to meet the legal test for wrongdoing.
However, in one of the cases (Johnson v Motonovo), the complaint was upheld and the relationship between the lender and the customer was ruled as being unfair under the Consumer Credit Act. This was due to the size of the commission – which was 55% of the total charge for credit, the failure to disclose the exact nature of the commission, and the concealment of the commercial tie between the dealer and the lender.
The judgement also highlighted that the customer in this instance was "commercially unsophisticated" and it was therefore "questionable to what extent a lender could reasonably expect a customer to have read and understood the detail of such documents".
Watch: Martin's instant reaction to the Supreme Court decision
Martin gave his quick initial reaction and analysis of the judgement on Friday 1 August:
Martin Lewis: "The Supreme Court has just announced its decision on car finance mis-selling. This is my instant reaction. There is a lot more detail to go through, but hopefully this will give you a rough idea of what's happened.
"Now, actually, bizarrely, I'm not going to start with the Supreme Court decision, because there are two different types of car finance mis-selling, and the bigger one for many people is the one that's been on hold because of the Supreme Court, but was not directly what the Supreme Court case was about.
"That is 'discretionary commission arrangements'. And that's where, when you got a PCP deal or a hire purchase deal from a car broker or dealer before 2021, January 2021, what could have happened, is your interest rate could have been increased from the minimum in order that the dealer or broker got more commission. That was banned in 2021.
"At the beginning of last year, the regulator announced it would be investigating that, and it is very likely that people were mis-sold on that basis, is what we're thinking is happening right now.
"Now, what we were waiting for in the Supreme Court decision is to see if it said anything that stopped discretionary commission arrangements being done, a redress scheme being done by the regulator. There wasn't anything, as far as I can see right now.
"So I suspect that within the next six weeks, because that's the timetable it's shown, it [the regulator] will launch a consultation on a redress scheme for anybody who had discretionary commission arrangements. So if you're one of the 3 million people who put that complaint form in via my website and found out you did have a discretionary commission arrangement; that's you. I'm even...
"There's a possibility that that redress scheme may be automatic. In other words, you don't even need to put a claim in and you would be paid out. Which is why I have a very big warning: do not sign up to a claims firm now, if you're thinking of it, because it is absolutely plausible that you will get the redress without doing anything, but the claims firm, if you've signed up to it, will want 25% or 30% of the money even though it hasn't done anything.
"So sit on your hands right now. We're waiting to see what happens from the regulator.
"Now, let's get into the Supreme Court case itself. There were three different cases. The first two were, one was about the fact that if you didn't know what the commission was and the car broker wasn't acting as a disinterested party, it was effectively bribery.
The second was very similar, where it said that the car broker or dealer had a fiduciary responsibility to be independent towards, when it's arranging your deal with the car finance firm. Now, what the court has said is: 'no, they don't have to be independent. They clearly had a commercial relationship with the car finance firm.' And therefore it rejected the Court of Appeal's decision on those two claims.
"Now, crucially, that means what was talked about in the widest area, that if you had a car finance arrangement and it hadn't told you what the commission is at all, even if the commission wasn't excessive, that that would mean that the car finance was invalid, and you're due compensation. That's gone. That's not happening now.
"The third case, which it has upheld. So it said this was a real case, is one of unfairness, where it thinks the commission was unfair and it set out a number of terms for that. But the three it looked at in the specific case are: one: in this particular individual's case, 55% of the cost of the finance was to pay the broker commission. So that was deemed as an excessive commission.
"And the fact that that was combined with, that the broker or dealer, while it doesn't have to be independent, have purported to be independent by saying 'we'll choose the best finance of a panel of lenders'. But it wasn't really. It was just working effectively with one lender or you know that was how it manifested itself in this particular case. That was deemed to be unfair, and therefore all the interest would be paid back.
"So that opens up, as well as discretionary commission arrangements, a whole new form of mis-selling, which I'm going to call 'excessive commission arrangements'.
"Now, what I will be pushing the regulator to do, and I think is plausible, is when it announces and hopefully announces – 90% likelihood – the redress scheme consultation for discretionary commission arrangements. It will also do it for excessive commission, because we need consistency and transparency of what those cases are.
"Now, if you want to understand the scale of this. If the Supreme Court had upheld all three cases, you'd probably be talking of payouts on the level of PPI – in the £40 billion to £45 billion level – and also a potential read across to other forms of finance, not just car finance.
"Now my guesswork, because we don't have the data, we don't have the detail. But my guesswork, is you're talking somewhere between £5 billion and £15 billion of payouts, because it'll primarily just be discretionary commission arrangements.
"The excessive commission is always going to be on a case-by-case basis. So it'll be interesting to see how the regulator deals with that.
"I hope that gives you a decent overview of what's happened and what's happening. I do need to say there's a lot more data to come out. We will need to wait and hear from the regulator; it'll put something short out now, I suspect, but it'll be five or six weeks before we hear more detail.
"We might hear from the Government, although I don't now see the likelihood that had been talked about of Government intervention on this; I think it will probably leave it to the regulator. So this is just a cursory overview.
"My biggest message to you while we wait exactly what's happening; don't do anything. Don't sign up to a claims firm. You don't need to do anything right now. Take your hands. Sit on them. Bye."
Read Martin's video transcript in full
Prefer to listen? Martin's recorded an emergency Car Finance Compensation Special, where he explains the latest – though this was filmed prior to the regulator announcing its plans for a redress scheme consultation.
The FCA will publish a consultation on a redress scheme by October
On Sunday 3 August, the FCA announced that it will publish a consultation on what a redress scheme will cover and how it could be run by October 2025. The consultation will run for six weeks with a view to the scheme launching and people beginning to get payouts in 2026. The FCA's consultation will look at:
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Which non-DCA agreements should be included. This is because the Supreme Court said that other sorts of agreements with fixed commission, for example where the commission is 'excessive', can be unfair to consumers. The FCA says it will propose that the scheme covers DCA agreements.
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What level of commission in non-DCA agreements is unfair. The FCA says it will need to consider what size of commission may point towards unfairness if not disclosed.
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How far back complaints can go. Currently, the FCA expects it to include car finance agreements going back to 2007. It says this is "to be consistent with the complaints the Financial Ombudsman can consider and to ensure the scheme is comprehensive". It adds that this would mean consumers would not need to use other routes to secure compensation and would prevent large numbers of ongoing disputes in the courts.
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Whether the scheme is opt in or opt out. The FCA has not yet decided which approach to take. It does say, however, that whichever approach it decides, lenders would be expected to make borrowers aware of the scheme and that they may have a claim.
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How to calculate the redress due. In DCAs, this could be the difference between the lowest rate you could have got and what you were actually charged. In fixed commission cases, it could be the total amount of commission – which is what the Supreme Court awarded Mr Johnson – though the regulator is considering other options. The FCA estimates that most payouts will be less than £950.
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How to calculate the interest due on any redress payment. The FCA has suggested it will consult on an annual interest rate of the Bank of England Base Rate plus 1 percentage point for the years you had an eligible car finance agreement. This is equivalent to simple annual interest (ie, it doesn't compound) of around 3%.
The FCA had already set out in June the principles that would guide any redress scheme. These are: comprehensiveness, fairness, certainty, simplicity and cost effectiveness, timeliness, transparency and market integrity.
The regulator has said it expects the total cost of the redress scheme to be somewhere between £9 billion and £18 billion, including costs, with the most likely outcome somewhere in the middle.
Complaints about mis-sold car finance are currently on hold, with the financial regulator previously giving firms until after 4 December 2025 to provide a final response. The FCA will now consult on further extending this deadline to align with the timetable for compensation payments of the proposed redress scheme.
Martin: 'There's no harm in putting in a complaint now'
If you've already complained there's little need to do anything. If not, the regulator says: "Our advice remains that consumers concerned that they were not told about commission and who think they may have paid too much for the finance, should complain now."
Martin's view on the back of this is that "there's no harm in putting in a complaint now":
There's no harm in putting in a complaint now to see if you had a Discretionary Commission Arrangement, and it could be particularly beneficial in old cases where you have the detail of your car finance, but the car finance firm may have deleted it. That way you put a marker in that you want your case looked at.
Though in newer cases, it's more that you want to know now whether you're likely due compensation or not, but if you don't want the hassle, you likely wouldn't lose out by not putting one in.
You can use our free template letter tools for DCA finance agreements to draft your complaint.
DON'T sign up to a claims firm – you can do this for free
You don't need to sign up to a claims firm to complain. It's something Martin has continuously warned about, alongside the regulator, which has said: "We aim to make any scheme easy to participate in, without needing to use a claims management company (CMC) or law firm. Using a CMC or law firm may end up costing them up to 30% in fees of any compensation they receive."
The Solicitors Regulatory Authority (SRA), alongside the FCA, have both previously said they had "become increasingly concerned about the conduct of some law firms and CMCs in this area".
We don't yet know what a redress scheme will mean for those who've already engaged a claims firm.
Commenting before the Supreme Court decision, Martin cautioned on X that "depending on the contract you may still have to pay the claims firm its cut, even if it's done nowt". He added: "We are talking to the FCA and the SRA (who regulate these firms) about that, but it's likely a contractual issue (we're still very firmly in the don't know fully yet phase though)".
Car finance mis-selling – a brief timeline
Discretionary commission arrangements (DCAs) | Commission disclosure complaints |
|---|---|
January 2024: FCA launches huge investigation into DCAs, which allowed brokers and dealers to choose from a range of interest rates, and to earn more commission if they charged a higher one. Car finance firms are told to pause dealing with complaints about these arrangements. | |
October 2024: Landmark Court of Appeal verdict rules that car sales firms couldn't lawfully receive commission from finance firms unless they had the customer's "fully informed consent" – in effect creating a new category of 'commission disclosure' mis-selling complaint. The car finance firms involved – Close Brothers and Motonovo – appeal this judgment to the Supreme Court. | |
December 2024: FCA extends pause on firms dealing with car finance complaints to all commission complaints – not just DCAs as was previously the case. It means car finance providers do not have to provide final responses to motor finance non-DCA commission complaints received on or after 26 October 2024 until after 4 December 2025. | |
March 2025: FCA confirms that it will consult on a redress scheme, and will announce the next steps for complaints six weeks after the Supreme Court makes its decision on the commission disclosure case. | |
August 2025: Supreme Court partially overturns October 2024 ruling, kiboshing most commission disclosure complaints. | |
August 2025: FCA announces it will consult on a redress scheme for DCAs (and some non-DCA complaints) 'by October'. |
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