Millions of car owners could be due payout worth thousands of pounds after FCA probe

A major investigation is underway by the Financial Conduct Authority after a large number of complaints from car owners.

And a separate appeal is being heard by the Supreme Court this week as lenders try and overturn a Court of Appeal ruling from 2024 that said hidden commission payments to dealers were unlawful.

Before January 2021, some lenders allowed brokers, such as car dealers, to increase car finance interest rates so they could take a higher commission.

This was known as a discretionary commission arrangement but was banned by the FCA in 2021 to stop incentivising brokers to increase the amount people were charged for loans.

Three members of the public won a Court of Appeal case in October 2024 against lenders Close Brothers and FristRand, with judges saying it was unlawful for lenders to have paid a commission to car dealers without the borrowers’ knowledge.

The lenders are appealing the case, with three days of evidence set to be heard judges this week, commencing April 1 2025. A final ruling is expected in the summer.

About 40% of car loan deals were thought to use a discretionary commission arrangement.

Although lenders and brokers reject doing anything wrong, more than 10,000 drivers have complained to the Financial Ombudsman Service believing they have paid over the odds.

There are "many more waiting in the wings", the FOS says.

The FCA is looking at historical discretionary commission arrangements and said it will ensure speedy compensation is paid out if it finds widespread misconduct.

It could mean millions of pounds of overpaid interest must be repaid to drivers who bought their car, van, campervan or motorbike on finance.

Already the FOS has confirmed and resolved some complaints into the practice.

Car finance claim checker

If you were sold a car, van, motorbike or campervan on finance before January 28 2021 and weren't made aware of the discretionary commission arrangement you may be entitled to compensation when the FCA concludes its investigations.

The vehicle had to be used primarily for personal use, not business.

While hundreds of companies that offer car finance are affected, some have told MoneySavingExpert they have never operated a discretionary commission arrangement.

They are:

The website is offering drivers a free guide to see if they can claim compensation which can be found here.

MoneySavingExpert founder Martin Lewis said on his Martin Lewis Money Show: "Some people will be owed thousands back. A typical buyer paid an average of £1,100 over the odds.”

The FCA said motor finance firms have until December 2025 to respond to relevant customer complaints.

But, getting a complaint logged sooner will mean less chance of missing a deadline for complaints.

Sheldon Mills, executive director of consumers and competition at the FCA, said in January: "We are taking a closer look at historical discretionary commission arrangements in the motor finance market following a high number of complaints from customers, which are being rejected by firms.

"If we find widespread misconduct, we will act to make sure people are compensated in an orderly, consistent and efficient way."

More information about the issue can be found on the FCA website.

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