Mis-sold car finance: compensation delay explained

If you were mis-sold car finance and ended up paying more than you should have, you could be waiting a lot longer to see any compensation. In July 2024, the Financial Conduct Authority (FCA) announced that it was delaying its investigation into Discretionary Commission Agreements – a now-prohibited car finance arrangement – until May 2025, eight months later than initially suggested. As a result, those seeking compensation for mis-sold car finance may have to wait longer before their complaint is resolved.

What’s the issue with mis-sold car finance?

The mis-sold car finance controversy revolves around Discretionary Commission Agreements. These secret agreements between car dealers and finance lenders, which were banned by the FCA in 2021, allowed dealers to adjust interest rates on finance deals without telling customers. This practice often resulted in customers paying more than necessary, while dealers earned extra commission.

What’s happening with the investigation?

The FCA announced its investigation into the issue in early 2024 after receiving numerous complaints and pressure from the Financial Ombudsman. It initially planned to release its findings by September 2024, however, the decision was delayed. The FCA quoted difficulties in gathering evidence and a separate legal case involving Barclays related to car finance as reasons for the set back.

As a result, the FCA's final decision on the matter won't be made until May 2025 – eight months later than initially expected. Additionally, car dealers and lenders now have until at least December 2025 to address any complaints, meaning those affected might have to wait even longer for a resolution.

What does it mean for you?

While the delay is frustrating, there is some positive news. The FCA is considering setting up a redress scheme, which could make it easier for affected customers to get compensation. Although it's still too early to confirm, the potential for a structured compensation program is promising. The FCA has advised banks and lenders to be prepared for potential payouts, suggesting that if the scheme goes ahead, the accumulated value of compensation could total in the billions.

In the meantime, organisations like the National Franchised Dealers Association (NFDA) are keeping a close eye on the situation. It has assured its members that it will support them through any developments from the FCA and Financial Ombudsman.

Not sure what car finance is? Read our complete guide to PCP car finance and our guide to APR interest…