How Is Car Finance Compensation Actually Calculated? The Figures Explained

Between 2007 and January 2021, most car finance deals in the UK involved a practice called a Discretionary Commission Arrangement (DCA). This practice led to consumers paying more for car finance than they should have.

Here's how it worked:

The customer had no way of knowing any of this — and no reason to question the rate they were offered, making it a textbook conflict of interest between their interests and those of the person arranging their loan.

What Did Car Finance Mis-Selling Actually Cost You?

The FCA collected agreement-level data from 34 lenders covering around 89% of the motor finance market. The figures paint a clear picture of how much more customers on DCA deals paid compared to those on non-discretionary arrangements.

Interest rates

The average APR on DCA agreements across the full period was 11.9%, compared to 8.9% on non-DCA agreements — a gap that persisted year after year across millions of deals. Before April 2014 the average DCA rate was 13.6%; after that date it fell to 10.5%, but the gap with non-DCA rates remained.

The Scale of the Problem: Key Figures

Commission earned by dealers

On DCA agreements where commission was non-zero, dealers earned an average of £754 per deal across the full period. That figure was lower in the earlier years — around £550 before April 2014 — and higher afterwards, averaging around £880 between 2014 and 2024. On non-DCA agreements, average commission was lower at around £644.

Note: commission was paid by the lender to the dealer, not charged directly to the consumer. The extra cost to consumers came through higher interest payments — reflected in the APR gap above — which effectively funded the dealer's commission.

Critically, customers were almost never told any of this. The FCA reviewed thousands of individual case files and found that in 0% of DCA cases were customers told that a discretionary commission arrangement was in place. In around 60% of DCA cases, customers were given only a vague, generic disclosure that commission may be paid — with no information about the amount, the structure, or the fact that the dealer's earnings depended on the rate they set. In none of the DCA cases reviewed were customers told the actual commission figure. Without that information, customers had no basis to question the rate they were offered, shop around, or negotiate a better deal.

Loan sizes

The average DCA loan was worth around £16,900 (post-2014), on which the dealer was earning commission in the hundreds of pounds by setting a rate above what the lender required. The customer had no idea this was happening.

Who Is Eligible?

The scheme covers regulated motor finance agreements — including personal contract purchase (PCP), hire purchase (HP), and conditional sale — taken out between 6 April 2007 and 1 November 2024. The FCA estimates 12.1 million agreements are eligible.

Eligibility isn't limited to DCA agreements. The scheme also covers:

Loans in the top 0.5% by value for the year they were taken out are excluded — the scheme is designed for the mass market. If your loan fell into that category, see the note at the end of this article.

The scheme covers agreements with a large number of lenders. If you're unsure whether your lender is included, you can check using the FCA's motor finance complaints page at fca.org.uk/consumers/car-finance-complaints.

How Much Will I Receive? The £830 Average Explained

The FCA estimates an average payout of £830 per eligible agreement — but this is a modelling figure, not a standard payment. Nobody simply receives £830. Every payout is calculated individually based on the specific details of your agreement. The median payout is £661, which better reflects what most people will receive — the mean is pulled upward by a small number of very high commission cases.

Are all payouts £830?

No. Each person gets a custom amount calculated for their specific agreement. The £830 is just the mean across all 12.1 million eligible agreements—it's a modelling output the FCA used to estimate the total cost of the scheme, not a standard payment anyone actually receives.

Your individual payout depends on the real figures from your actual loan:

So two people who both took out £15,000 car finance deals in the same year could get quite different payouts if their APRs, commission levels, or lender arrangements differed.

How are payouts calculated?

For the vast majority of claimants, the payout is calculated using what the FCA calls a hybrid remedy — literally the midpoint (average) of two figures:

Leg 1 — APR Adjustment (the estimated loss)

This asks: how much more interest did you pay because of the DCA or undisclosed commission arrangement, versus what you would have paid if treated fairly? The FCA estimated this by statistically matching DCA agreements to comparable non-DCA agreements and measuring the APR difference. They found:

Leg 2 — Commission Repayment (the actual commission paid)

This is simply the actual cash commission the lender paid to the dealer/broker on your agreement. Average commission on DCA agreements was around £754 where commission was non-zero, slightly lower pre-2014 (~£550) and higher post-2014 (~£880).

The hybrid remedy takes the average of these two figures for each individual agreement. This is deliberate — the FCA wanted to avoid both under-compensating (just returning the commission, which might not reflect the full loss) and over-compensating (giving the full estimated APR loss, which could exceed actual harm in some cases).

The cap (why ~1 in 3 are reduced)

Around a third of eligible agreements have their payout capped at whichever is lower of:

The cap exists to prevent anyone being put in a better position than if they'd been treated fairly. In practice it bites where the APR adjustment leg produces a very large estimated loss but the commission was relatively modest, or where the actual rate charged wasn't far above the cheapest available in the market.

The exception: very high commission cases (full commission repayment)

A small number of cases — around 0.3% — get a more generous remedy. If the commission was ≥50% of the total cost of credit and ≥22.5% of the loan value, AND there was also an inadequate DCA or tied arrangement disclosure, the customer gets the full commission repayment (not the hybrid midpoint). These average out at around £3,000–£3,900 per agreement.

Plus compensatory interest on top

All redress figures above are before interest is added. Compensation accrues interest at the Bank of England base rate + 1 percentage point per year, with a minimum floor of 3% in any year. For older agreements going back to 2007 this is a material addition — the FCA calculated a rate of 4.49% for 2026 based on BoE projections. The interest is calculated from the date of each individual payment that was overcharged.

Is the calculation fair to consumers?

The hybrid remedy doesn't give you the full value of either loss (the higher APR and the commission payment), let alone both combined. It takes the midpoint of the two figures, so you're getting roughly half of each.

The FCA's reasoning is that the two measures aren't fully independent — the commission is the mechanism through which the higher APR was charged, so they're both proxies for the same underlying harm rather than two separate, additive losses. Their position is that averaging the two gives a fair midpoint that neither under-compensates nor over-compensates, and that a consumer who received the full APR adjustment and the full commission back could end up better off than if they'd simply been given a fairly priced loan from the start.

However, critics would argue the two figures measure different things:

These don't necessarily correlate tightly. If your dealer charged you a modestly higher rate but earned a very large commission (or vice versa), the midpoint could significantly under-represent one dimension of the harm. The FCA's own acknowledgement of this is implicit in the very high commission exception — where the commission was egregious enough, they recognised that returning the full commission was the fairer remedy, regardless of the APR calculation.

What Should I Do Now?

Here's what you need to know about making a claim.

You don't need to pay anyone to claim

You can complain directly to your lender for free. There is no need to use a claims management company (CMC) or law firm — and good reason not to. CMCs typically charge upwards of 30% of any compensation you receive, which on an £830 payout would mean handing over £250 or more for something you could do yourself at no cost. The FCA has already removed or amended 800 misleading CMC adverts and has launched a joint taskforce with the Solicitors Regulation Authority and Advertising Standards Authority to crack down on poor practice in this area.

If you want to be compensated sooner, complain now

People who complain before the end of the relevant implementation period will be processed first. The deadlines are:

After those dates, lenders have three months to assess your complaint and tell you what you're owed. Complaining before the deadline puts you at the front of the queue.

If you'd rather wait, your lender should contact you

If you don't complain, lenders are required to contact you proactively if their records suggest you're likely owed money. You should hear from them by:

If you haven't been contacted and haven't complained, the final deadline to make a claim is 31 August 2027.

Watch out for scams

A compensation scheme of this size inevitably attracts fraudsters. You should never pay a fee to access compensation, and you should never share sensitive details — such as your PIN or online banking credentials — with anyone claiming to be acting on your behalf. Use the contact details listed on the FCA website to verify you're dealing with your genuine lender, and be cautious of unsolicited approaches by phone, email or text.

If you disagree with your lender's decision

If your lender assesses your complaint and you believe they've applied the scheme rules incorrectly, you can refer your case to the Financial Ombudsman Service (FOS), which has the power to assess whether the scheme rules have been followed. You can also choose to take your case to court instead of participating in the scheme, though the FCA notes that after legal fees, many consumers could end up with less than the scheme would have paid — and the outcome is uncertain.

If your loan was very high value

The scheme is designed for the mass market and excludes loans that fell in the top 0.5% by size for the year they were taken out — roughly speaking, the very largest loans originated in any given year. If your agreement was in that category, you won't be covered by the automatic scheme process, even if your dealer was paid a large commission or your rate was inflated.

That doesn't mean you have no recourse. You can still complain directly to your lender and, if unsatisfied, escalate to the Financial Ombudsman Service. You can also pursue a court claim independently of the scheme. Given the sums potentially involved, it would be worth taking proper legal advice before deciding which route to take.