Car finance update: Regulator says don't use claims firms as £1bn in compensation at risk
The Financial Conduct Authority (FCA) has urged consumers not to sign up with claims management companies (CMCs) or law firms just yet, saying it will ensure any future compensation process is simple enough for people to do themselves.
A car finance scandal is brewing as the UK approaches the final decision of an FCA review into Personal Contract Purchase (PCP) schemes which previously saw car dealers allowed to raise interest rates so they could take a higher commission.
Thousands of customers were unaware that this was happening and the practice was banned in 2021 when the FCA - the financial regulator - decided to stop incentivising brokers to increase the amount people were charged for loans.
The Court of Appeal and the Supreme Court have both confirmed that it was unlawful for commission to be paid without the borrowers' informed consent.
The UK is approaching the final stage of the FCA’s review into motor finance commissions following a landmark 2025 Supreme Court ruling. While the legal groundwork for compensation is now set, the FCA is scheduled to finalize its official redress scheme rules in late March 2026.
This will confirm exactly how billions in payouts will be calculated. In the meantime, the regulator is warning car owners to prepare their evidence now but to avoid high-fee third parties who may take up to 30% of any eventual settlement.
A spokesperson said any redress scheme would be made "easy for consumers to understand and participate in" on their own.
The spokesperson added: "Consumers should be aware that by signing up now with a CMC or law firm, they may end up paying for a service they do not need and having to pay up to 30% in fees out of any award they may receive."
£1bn at risk due to missing lender records
But there’s another twist because many records have been deleted, a legal expert has warned.
As much as £1 billion in potential payouts could be at risk – because lenders are only required to keep records for six years. Therefore many agreements taken out before 2018 may now be impossible to verify—making successful claims far less likely.
The Guardian reports that while the FCA ordered firms to pause document deletion in early 2024, many contracts ending before 2018 remain difficult to trace. To address this, the FCA issued updated 2025 guidance allowing consumers to use secondary evidence—such as bank statements showing monthly payments or old emails from dealerships—to substantiate claims where the original lender records have been lost or destroyed.
While the FCA ordered firms to pause document deletion in early 2024, many contracts ending before 2018 remain difficult to trace. To address this, the FCA issued updated 2025 guidance allowing consumers to use secondary evidence—such as bank statements showing monthly payments or old emails from dealerships—to substantiate claims where the original lender records have been lost or destroyed.
Claims law firm Courmacs Legal told The Guardian 465,000 consumers on its books fall into this category, and they could lose out on £1.18bn.
Darren Smith, managing director of Courmacs, said: “There is a real risk that millions of people will lose out because the banks which ripped them off will never write to them."
If you took out a PCP or Hire Purchase (HP) deal before 2021, you should now take active steps to secure your compensation.
Under the 2026 FCA rules, you must first lodge a formal complaint with your lender. If they do not respond within eight weeks or you are unhappy with their decision, you can now escalate your case directly to the Financial Ombudsman Service (FOS) for a final ruling.
Look for car finance agreements, lender names, and payment terms.
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