What Is Car Finance Compensation?
Car finance compensation refers to potential redress for customers who may have been affected by the way some car finance commission arrangements were structured and disclosed.
In particular, a type of commission called a Discretionary Commission Arrangement (DCA) allowed car dealers to influence the interest rate on a finance agreement. In some cases, the higher the rate set by the dealer, the more commission they received. The FCA found this created a conflict of interest that was not always disclosed to customers.
The FCA banned discretionary commission arrangements in car finance in January 2021 and launched a review of past conduct in January 2024.
The Financial Ombudsman Service and the courts have also been examining related complaints. The Supreme Court has been asked to rule on relevant points of law. Decisions from official bodies will shape what happens next.
Why Car Finance Commission Arrangements Became a Major Issue
Before January 2021, some lenders allowed car finance brokers (typically car dealers) to set the interest rate within a range. Brokers could earn more commission by setting a higher rate. This arrangement was not always clearly explained to customers.
Regulators found that these arrangements could incentivise brokers to charge customers more than necessary, and that the conflict of interest was not adequately disclosed.
The FCA has been clear that it does not tolerate arrangements that work against customers' interests. Its review is ongoing and the FCA has asked lenders to pause handling some related complaints while it completes its work.
The situation is developing. The most reliable source of current information is the FCA website at fca.org.uk.
Understanding FCA Guidance
The Financial Conduct Authority (FCA) is the UK's financial regulator. It regulates car finance lenders and brokers, and it has been actively reviewing the car finance commission issue.
The FCA's guidance on this topic is available at fca.org.uk. The FCA has published consumer-facing information explaining the situation, what it is investigating, and when it expects to provide more clarity.
We strongly encourage you to read the FCA's own materials. They are written in plain English and set out the official position accurately and without commercial interest.
The Financial Ombudsman Service (FOS) also publishes guidance on how complaints about car finance are assessed. Their website is financial-ombudsman.org.uk.
Can You Complain Yourself?
Yes. You do not need to use a claims management company or law firm to make a complaint about car finance.
You can complain directly to the lender who provided your car finance. If you are unsatisfied with their response, or if they do not respond within the required timeframe, you can escalate the complaint to the Financial Ombudsman Service at no cost.
The Financial Ombudsman Service is a free, independent service set up specifically to resolve complaints between consumers and financial businesses.
Making a complaint yourself means you keep any redress you may receive in full, rather than paying a percentage to a claims management company.
Citizens Advice also offers free guidance on making financial complaints.
Information You May Need Before Making a Complaint
If you decide to make a complaint, it may help to have some information to hand. This could include the name of the lender, the name of the broker or car dealer, the date of the agreement, the type of finance (such as Personal Contract Purchase or Hire Purchase), and any documentation you have kept.
You can request information from your lender under the right of access. This is sometimes called a Subject Access Request (SAR) and is free.
The FCA and Financial Ombudsman Service websites explain clearly what information you may need and how to structure a complaint.
You do not need to pay anyone to help you gather this information.
What Happens After a Complaint Is Submitted?
When you submit a complaint to a lender, they are required to acknowledge it promptly and respond within eight weeks.
If you are unhappy with the response, or the lender does not respond within eight weeks, you can refer the complaint to the Financial Ombudsman Service.
The FOS will review the complaint independently and reach a decision. If the FOS upholds a complaint, the lender must comply with its decision. If you disagree with the FOS decision, you retain the right to pursue other routes.
The FCA's review may also affect how lenders handle complaints in this area. Check the FCA website for the latest position.
Common Myths About Compensation Claims
Myth: Everyone with car finance is automatically owed compensation. This is not accurate. Whether any redress is appropriate depends on individual circumstances, the type of agreement, when it was taken out, and decisions by regulators, lenders and potentially courts.
Myth: You need a claims company to be taken seriously. This is not the case. The Financial Ombudsman Service is a free, independent service that treats all complaints equally regardless of whether a claims company is involved.
Myth: Using a claims company means you get a better outcome. There is no evidence that using a paid claims company consistently leads to better outcomes than complaining directly. It does mean paying a fee if compensation is received.
Myth: The process is too complicated to do yourself. The complaint process is designed to be accessible. The Financial Ombudsman Service's website has clear step-by-step guidance.
Why Some People Choose Not to Use Claims Companies
Claims management companies typically charge a fee based on a percentage of any compensation received. Fees vary but can be substantial — sometimes 25% to 40% or more of any amount received, plus VAT.
Because the same complaint can be made directly by consumers for free, many people choose to handle their own complaint rather than pay a percentage of any redress to a third party.
FCA-authorised claims management companies are required to tell you clearly that you can make a complaint yourself for free before you sign an agreement with them.
If you do consider using a claims management company, check their FCA authorisation at register.fca.org.uk, read the fee agreement carefully, and understand exactly what you would pay if compensation were received.
How AskFin Can Help You Understand the Process
AskFin is a financial education platform. We help people understand their money, find official guidance and make more informed decisions.
Ask Fin, our AI companion, can help you understand financial topics, explain terms and direct you to official resources. It does not give regulated financial or legal advice, and it cannot tell you whether you are eligible for compensation.
We provide this content to help you understand the landscape clearly so you can decide what, if anything, you wish to do — and how to do it.
Official FCA Resources
The FCA has published dedicated consumer-facing information about car finance commission. We recommend reading it directly at fca.org.uk rather than relying on summaries from parties with a commercial interest in the outcome.
The Financial Ombudsman Service has published information about how it handles car finance complaints at financial-ombudsman.org.uk.
Citizens Advice can also provide free, independent guidance on making financial complaints.