Motorists could be in for thousands of pounds in refunds due to a car finance mis-selling scandal, drawing comparisons with the infamous PPI fiasco.
The scandal, which has seen drivers overpaying for vehicles for years unknowingly, centres on undisclosed "secret" commissions paid to dealers by lenders, causing finance agreements to have higher interest rates than expected. The full scale of this issue has recently been unveiled, with a decisive Supreme Court judgement in the UK expected later in 2025 that will determine the extent of lenders' liability for repayments.
Customers who purchased vehicles through Personal Contract Purchase (PCP) or Hire Purchase (HP) before 28 January 2021 might be eligible for refunds potentially amounting to thousands of pounds.
My Claim Group (MCG) is currently assisting those affected. Estimates suggest that as many as 40% of HP and PCP deals from 2007 to 2021 may involve such commissions, indicating widespread potential for compensation. MCG's efforts have already led to significant claims, with an average estimated value of £4,000 each across 1.2 million cases.
Find out how much you could be owed on My Claim Group.
For more insight, here's our guide to understanding the car finance mis-selling situation:
What are the origins of the scandal?
Before 2021's regulatory changes, numerous car finance agreements were centred on "discretionary commission arrangements." Under these schemes, car dealers could set interest rates for finance deals they mediated. The higher the rate, the more substantial the dealer's commission.
Such structures led to a palpable conflict of interest—dealers had a monetary incentive to promote high-interest loans to consumers, regardless of suitability or cost-effectiveness. Often, the specifics of these commissions weren't fully disclosed, leaving customers in the dark.
Consequently, many unwittingly agreed to pricier loans than necessary, influenced by dealers' ambitions to maximize their earnings.
When was this practice prohibited?
The Financial Conduct Authority (FCA) stepped in against such models in January 2021, introducing a ban to foster transparency and protect consumer interests. Nonetheless, subsequent investigations revealed the presence of these dubious strategies as early as 2007, triggering a comprehensive review of historical lending activities.
A significant turning point occurred in October 2024 when the Court of Appeal declared that the non-disclosure of commissions on car loans was illegal. This ruling broadened the scope for mis-selling claims, establishing a precedent that any undisclosed commission arrangements could now be a valid ground for consumer compensation.
This decision triggered a wave of complaints, with the Financial Ombudsman Service recording a record 18,658 new car finance cases in the last quarter of 2024.
What has been the impact on lenders?
The financial consequences for lenders have been substantial. In the wake of the Court of Appeal's ruling, Lloyds Banking Group increased its provision for potential compensation payouts to £1.1 billion.
Analysts are speculating that the total impact on Lloyds could surpass £4 billion. Other major lenders, including Santander UK, Close Brothers, and Barclays, are also facing considerable potential liabilities, with some industry estimates suggesting that total compensation costs could reach up to £30 billion.
What is the current situation?
The scandal led to government intervention. In January 2025, UK Chancellor Rachel Reeves attempted to intervene in the Supreme Court case to shield lenders from potential multibillion-pound payouts, voicing concerns about the wider economic implications and the potential effect on consumers' access to car loans.
At the same time, claims management companies like My Claim Group are actively urging consumers to lodge complaints. The Supreme Court is currently examining a crucial appeal by car loan providers, following previous judgements that sided with consumers. The FCA has temporarily halted the complaints process until the court's decision, expected later this year.
The result of this appeal will be pivotal in establishing the liability of lenders.
What can I do?
If you suspect you may have been affected by the scandal, head over to the My Claim Group website for more information and start the straightforward process to find out if you're due a refund.
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