Car finance scandal 'likely' to hike prices for hard-pressed drivers despite compensation scheme

Felix Reeves
Sun, 26 Apr 2026 05:00:01 +0000

Drivers could see car finance costs rise in the coming years as major lenders and dealers attempt to claw back money diverted for a £9.1billion compensation scheme.

Banks and lenders have come under scrutiny in recent years for overcharging drivers for their car finance with "hidden" compensation agreements.

The Financial Conduct Authority (FCA) confirmed at the end of March that it would launch a redress scheme for around 12.1 million eligible agreements, at a total cost of £12.1billion for lenders.

When going through the scheme, the average agreement could be eligible for £829 in compensation, with some of the biggest finance groups in the UK liable for expensive costs.

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Speaking to GB News, Dr Samir Alamad, Senior Lecturer in Finance at Coventry University, suggested that it was "likely" that car finance groups would hike future prices for drivers to cover any costs associated with the redress scheme.

Some of the biggest banks and lenders in the country set aside hundreds of millions of pounds in preparation for the compensation payments.

One bank in particular, South African firm FirstRand, which owns MotoNovo, announced that it would be leaving the UK market, stating that it no longer had the "risk appetite" for the country.

It described the FCA's compensation scheme as being "deeply flawed", "disproportionate", and "unfair" in a statement to shareholders earlier in April.

Dr Alamad said: "The short-term pressure is particularly on specialist lenders who may struggle with the sheer scale of the payouts.

"Not necessarily every lender, but this could lead to slightly higher interest on new car deals, as they try to recoup the costs they incurred. It's whether they stay competitive in the market when they do that or not."

He suggested that motorists would likely see the FCA's intervention as a clean-up of the market, similar to recent changes for banks dealing with mortgages.

"Car dealer commissions and that practice is over now, so dealers now mostly use a fixed fee model, meaning the price you see as a motorist or consumer seeking car finance, is much more likely to be the actual price," Dr Alamad noted.

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When announcing the terms of the redress scheme, the FCA suggested that lenders could begin paying compensation to affected customers as soon as possible, although this is unlikely to happen.

Consumer Voice recently announced that it would challenge the regulator's compensation scheme, claiming that many drivers were being left "short-changed".

The campaign group argues that 4.7 million mis-sold agreements were not included in the final redress scheme, while others are set to receive far less than they actually lost.

Data from Consumer Voice shows that 22 per cent of drivers said commission had been clearly explained at the time of sale, while a similar proportion said car finance had made it harder to pay other bills.

In response, the FCA explained that it had "no vested interest" in setting up a motor finance redress scheme, adding that consumers should receive fair compensation while supporting a healthy motor finance market.

Pat Hoy, Founder of Insider Car Deals, said it was "great" that the FCA was cracking down on hidden finance agreements, but highlighted the different rules for the second-hand market.

He explained: "In used cars, dealers can still legally steer customers towards higher-rate finance that pays them more, and encourage buyers to borrow as much as possible for as long as possible to inflate their commission. Both happening today, both perfectly legal.

"But the biggest blind spot of all? New car pricing. The difference between an advertised price and what you could actually pay for the same car can run into thousands of pounds and the FCA has absolutely no remit to touch it.

"Hide your finance commission and it's a scandal. Hide your dealer margin on a new car and it's just Tuesday."