Car finance compensation: FCA warns drivers against using rip off claims firms for share of £18bn

Drivers who think they are owed compensation from their motor finance provider don’t need to use a claims management company (CMC) or law firm to get a payout, the Financial Conduct Authority (FCA) has said, as it warned consumers off this expensive route.

Motor finance customers could receive a payout after the FCA announced it will consult on an industry-wide compensation scheme in October. If the scheme goes ahead redress will be paid in 2026.

This is after it was found many motor finance firms were not complying with rules or the law by not providing customers with relevant information about commission paid by lenders to the car dealers who sold the loans.

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The FCA currently estimates most individuals will probably receive around £950 in compensation per agreement – but they will get much less if they go to a claims management company who will take a big chunk of any payout.

What if I’m owed motor finance compensation?

Research commissioned by the FCA shows more than three quarters (79%) of motor finance customers are aware they may be owed compensation and six in 10 (61%) know about a possible compensation scheme.

However, as many as four in 10 (41%) of those aware they may be owed money didn’t know they would not need to use a claims management company or law firm if a redress scheme is introduced.

Using a CMC or law firm to make a motor finance claim could cost consumers around 30% of any compensation paid, the FCA pointed out.

Of motor finance holders aware of the possibility of being owed compensation, 25% have already made a claim and a further 39% intend to. Among those who have already made a claim, just under half (46%) did so using a claims management company or law firm.

Sheree Howard, executive director at the FCA, said: “We’ll set out plans for a free, easy-to-access motor finance compensation scheme.

“We’re concerned a significant number of people are unaware you don’t need to use a CMC or law firm to claim compensation. If you do, you could lose over 30% of any money you’re owed.”

The FCA recently issued a joint statement with the Solicitors Regulation Authority warning CMCs and law firms over poor practices in motor finance commission claims. Concerns include the volume and accuracy of marketing materials, and how information is shared or verified when clients are passed on from third parties.

The FCA has also required CMCs to remove or amend 396 motor finance commission promotions between January 2024 and August 2025. 

Separately the FCA has recently warned consumers about scammers pretending to be car finance lenders and falsely claiming that people are owed compensation, despite there being no car finance compensation scheme in place yet. Consumers should hang up immediately and not share any information if they receive calls like this, the FCA said.

FCA motor finance compensation scheme

The FCA’s decision to consult on an industry-wide compensation scheme follows a landmark ruling by the Supreme Court on motor finance cases in August.

While some motor finance customers won’t get compensation because in many cases commission payments were legal, the Court ruled that in certain circumstances the failure to properly disclose commission arrangements could be unfair and therefore unlawful.

The FCA will propose rules on how those lenders who provided motor finance should “consistently, efficiently and fairly” decide whether someone is owed compensation and how much – and will monitor if firms are following the rules.

Speaking to the Treasury Select Committee on 9 September, Nikhil Rathi, chief executive of the FCA, said its consultation on the industry-wide redress programme that will guide lenders on how they should compensate customers that were mis-sold loans will end in early October and compensation, where it is due, can start to be paid next year.

He said the 2007 to near-2020 time frame being used for the redress scheme will cover around 30 million agreements, but warned not all of those will be eligible for compensation.

The FCA believes its redress scheme will cost up to £18bn in total, with more details of how to claim once the compensation scheme is announced next month, as is expected.