Thousands of motorists could be awarded car finance compensation as regulator launches consultation

In a statement, the regulator noted that its previous review of the past use of motor finance "has shown that many firms were not complying with the law or our disclosure rules that were in force when they sold loans to consumers".

The FCA added: "Where consumers have lost out, they should be appropriately compensated in an orderly, consistent and efficient way."

This consultation is scheduled to be published by early October and any compensation scheme will be finalised for people to be paid later this next year.

Notably, the FCA's latest update comes after the Supreme Court ruled on a separate case relating to car finance.

Earlier this week, the court overturned a ruling that would have seen millions of motorists due compensation for over "secret" commission payments made to car dealers as part of finance arrangements.

It should be noted that the FCA's consultation will look into discretionary commission arrangements (DCAs), which is a practice banned since 2021.

As part of these deals, brokers and dealers increased the amount of interest they earned without informing buyers.

This incentivised sellers to maximise interest rates in order to receive a higher commission.

After the Supreme Court's ruling, the FCA claims any potential compensation scheme could also include non-discretionary commission arrangements.

These deals are arrangements which ensure the buyer's interest rate does not impact the dealer's commission.

Citing the court's judgement, the regulator states the ruling "makes clear that non-disclosure of other facts relating to the commission can make the relationship [between a salesperson and buyer] unfair".

Reacting to the Supreme Court's decision, Greg Huitson-Little, a partner for Forensic and Valuation Services at, Menzies LLP, said: "Car purchases and car financing are understandably intrinsically linked when buying new or second-hand cars.

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"But terms like ‘dealer contributions,’ ‘rentals,’ and ‘guaranteed future values’ have all blurred the lines between the purchase of a car and the arranging of finance, making it very difficult for consumers to understand the true nature of the two transactions.

"This lack of transparency – brought into sharp focus with hidden commissions – has steadily eroded consumer trust, which will likely have long term implications for motor finance and wider consumer credit sectors.

"Although the Supreme Court’s decision reverses much of the Court of Appeal’s earlier decisions, the reputational damage is already done. While we await the FCA’s guidance on redress later this year, the message is clear: the car finance industry needs to be more transparent.

"That means clear terms and simple structures, proper disclosure, and a renewed commitment to treating car finance for what it is - a loan between the consumer and a third-party lender. The days of opaque 'deals' must come to an end."