Thousands of UK drivers who took out car finance through a dealership could face a longer wait for compensation, as the legal challenges to the proposed redress scheme are set to be heard in 2027.
The issue concerns certain Personal Contract Purchase (PCP) and Hire Purchase (HP) agreements, where customers may have been treated unfairly because of commission arrangements between car dealers and finance companies.
It does not apply automatically to every type of vehicle loan.
Why are PCP and HP agreements affected?
PCP and HP are two of the most common ways of financing a car through a dealership.
With PCP, drivers typically pay a deposit followed by monthly instalments, and a choice at the end of the agreement, to either return the vehicle, pay a final amount to own it, or trade it in.
With HP, drivers make monthly payments towards the vehicle and generally become its owner after completing the agreement.
The compensation issue centres on commission paid by lenders to dealers or brokers arranging finance. Some commission arrangements could give dealers an incentive to charge customers higher interest rates, without properly explaining how the commission worked.
The Financial Conduct Authority (FCA) has proposed a compensation scheme for eligible customers who were treated unfairly under certain arrangements.
Which drivers could qualify?
The proposed scheme covers certain motor finance agreements taken out between 6 April 2007 and 1 November 2024. However, not every PCP or HP agreement will qualify.
Eligibility depends on the circumstances of the agreement and the commission arrangements involved.
The issue is separate from personal loans used to buy a car independently, logbook loans secured against a vehicle, and other forms of borrowing. Those products are not automatically covered by the proposed scheme.
Why are payouts delayed?
Legal challenges to the FCA’s proposed scheme are scheduled between 16 February and 3 March 2027.
The outcome may affect the scheme and when motorists who are eligible receive compensation. Until the legal process is sorted out, drivers could wait longer to find out whether they qualify and how much their compensation could be.
What should motorists do?
Drivers who believe they were mis-sold PCP or HP finance can complain directly to their finance provider for free. They should gather any available finance agreements and correspondence and check the FCA’s latest guidance.
There is no need to pay a claims management company simply to submit a complaint. Such firms may charge a substantial proportion of any compensation awarded.
For motorists who financed a car through a dealership, the key question is whether their particular agreement involved commission arrangements that could make them eligible for redress.