PCP Mis-Sold Car Finance — How to Check and Claim Compensation (2025)
Up to 40 million car finance agreements sold in the UK between 2007 and 2021 may have involved hidden commission payments that artificially inflated the interest rates customers paid. The Financial Conduct Authority has launched a major review, and the Court of Appeal ruled in October 2024 that lenders acted unlawfully. This could be the biggest consumer redress scheme since PPI — and you may be entitled to hundreds or even thousands of pounds.
What Is PCP Car Finance?
Personal Contract Purchase (PCP) is the most popular way to finance a new or used car in the UK, accounting for roughly 80% of all new car sales at its peak. Under a PCP agreement, you pay a deposit followed by fixed monthly instalments over a term — typically two to four years. At the end of the term you have three options: pay a final "balloon payment" to own the car outright, hand the car back with nothing further to pay (if within mileage limits), or use any equity as a deposit on a new agreement.
PCP became enormously popular because it keeps monthly payments lower than a traditional hire purchase (HP) loan, making expensive cars appear affordable. The catch is that the total cost over the life of the agreement — including the interest rate charged — can be significantly higher than it first appears, and consumers were rarely in a position to compare the true cost of different deals.
Between 2007 and January 2021, the interest rates on many PCP agreements were not set by a standard algorithm. Instead, car dealers and finance brokers had the power to set — or "flex" — the interest rate within a range allowed by the lender. The higher the interest rate the dealer set, the more commission they received from the finance company. Customers were not told that their dealer had this discretion or that the dealer's commission depended directly on how much interest the customer paid.
What Are Discretionary Commission Arrangements?
Discretionary Commission Arrangements (DCAs) were the mechanism at the heart of the scandal. Under a DCA, a car dealer or finance broker could increase the interest rate on a customer's finance agreement — sometimes called "rate for risk" pricing — and receive a higher commission in return. The arrangement created an obvious conflict of interest: the dealer was supposed to be acting in the customer's interest by finding them a good deal, but was financially incentivised to charge them as much interest as possible.
The Financial Conduct Authority banned DCAs in January 2021 precisely because of this conflict of interest. The FCA estimated that consumers were paying an average of £1,100 more over the life of a finance agreement as a result of DCAs. On higher-value vehicles or longer agreements, the excess could be considerably more.
The Court of Appeal Ruling — October 2024
In October 2024, the Court of Appeal handed down a landmark judgment in three joined cases against Close Brothers and MotoNovo Finance. The court went further than many expected, ruling that lenders had acted unlawfully not just in cases involving DCAs, but in any situation where a commission was paid to a dealer without the customer's informed consent — even if the rate was fixed rather than discretionary.
The court held that dealers and brokers act as credit brokers and therefore owe a duty of loyalty to the customer. Paying commission to a broker without the customer's full knowledge and consent is a breach of that duty. This reasoning potentially extends the scope of mis-selling claims well beyond the DCA period, affecting a much larger number of agreements than previously thought.
The lenders — including Lloyds Banking Group (which owns Black Horse Finance, one of the UK's largest car finance providers), Santander, and Close Brothers — appealed to the Supreme Court. The Supreme Court heard the case in April 2025, and its judgment is expected later in 2025. In the meantime, the FCA has paused the eight-week deadline for lenders to respond to complaints, pending the outcome of the Supreme Court appeal.
How Much Could You Claim?
The amount you could recover depends on how much interest you paid over and above a fair rate. The FCA has estimated average consumer harm of around £1,100 per agreement, but individual figures vary significantly based on:
- The purchase price of the vehicle and the amount financed
- The interest rate you were charged compared to a "fair" rate
- The length of the agreement
- Whether the dealer used their full discretion to maximise the rate
Analysts at the time of the Court of Appeal ruling estimated the total industry-wide liability at between £13 billion and £30 billion — making it potentially larger than the PPI scandal, which resulted in over £38 billion in payouts. Individual claims could range from a few hundred pounds to several thousand for premium vehicles on long agreements.
Who Is Affected?
You may have a claim if all of the following apply:
- You took out a PCP or HP car finance agreement in the UK
- The agreement was entered into between April 2007 and January 2021 (for DCA-based claims) — or potentially any date if the broader commission argument succeeds at the Supreme Court
- The finance was arranged through a dealer or broker (rather than directly with a lender)
- You were not told about the commission the dealer received or given the opportunity to consent to it
The agreement does not need to be ongoing — claims can be made on agreements that have already ended, provided the time limit has not expired. You do not need to have the original paperwork, as lenders are required to retain records.
Which Lenders Are Involved?
The majority of mainstream car finance lenders used DCAs at some point. Those known to be involved in current proceedings or FCA review include:
- Black Horse (Lloyds Banking Group) — one of the largest car finance providers in the UK
- Close Brothers Motor Finance — central to the Court of Appeal case
- MotoNovo Finance — joint respondent in the Court of Appeal
- Santander Consumer Finance
- FirstRand Bank (trading as Aldermore and MotoNovo)
- Barclays Partner Finance
- Secure Trust Bank
Other lenders including Volkswagen Financial Services and BMW Financial Services have also received complaints, though their DCA exposure may differ. If your finance was arranged through a dealership, it is worth checking regardless of the specific lender.
How to Check If You Were Mis-Sold
The first step is to find out who your finance provider was and what the interest rate on your agreement was. If you do not have your original paperwork, you can request a copy of your credit agreement from the lender under the Consumer Credit Act 1974. Lenders are obliged to provide this within 12 days.
Once you have your agreement, look for the APR (Annual Percentage Rate) and compare it to what you might have expected to pay based on your credit score and the amount financed. A rate significantly above the lender's advertised standard rate may indicate a discretionary uplift was applied.
How to Make a Claim — Step by Step
- Gather your documents — find your original finance agreement, or request a copy from the lender. Note the lender's name, the APR, the amount financed, and the term.
- Write to the lender directly — you do not need to use a claims management company. Write to the lender's complaints department setting out that you believe your agreement involved an undisclosed commission arrangement and that you were not given the opportunity to provide informed consent. Ask them to investigate.
- Wait for their response — lenders currently have a pause on the standard eight-week response window due to the FCA's review. They are not required to respond until after the FCA issues its final guidance (expected after the Supreme Court judgment).
- If unhappy, complain to the Financial Ombudsman Service (FOS) — if the lender rejects your claim or fails to respond within the required timeframe, you can escalate to the FOS for free. The FOS is currently processing a large volume of car finance complaints.
- Preserve the limitation period — if you are worried about time limits, submitting a complaint to the lender now stops the clock running on your right to claim, even if the lender cannot respond immediately.
Time Limits — Act Before It's Too Late
The standard limitation period for financial mis-selling claims is six years from the date of the agreement, or three years from when you knew (or should have known) about the mis-selling — whichever is later. For agreements entered into before 2019, many customers will be relying on the "discoverability" test — arguing that they could not have known about hidden commission arrangements until the FCA began publicising the issue.
The FCA has requested that the courts toll (pause) limitation periods during the review process, but this is not guaranteed for all claims. If your agreement is approaching the six-year mark, submitting a formal complaint now is advisable to protect your position.
Should You Use a Claims Management Company?
Claims management companies (CMCs) are actively advertising for PCP claims, often promising no-win no-fee arrangements. While CMCs can handle the paperwork on your behalf, they charge substantial fees — typically 20% to 36% of any compensation received — for work you can do yourself for free.
The process of complaining to a lender and, if necessary, to the Financial Ombudsman is straightforward. Template complaint letters are available from consumer groups including Which? and MoneySavingExpert. Unless your case is complex or you simply don't want to deal with the process, there is little reason to pay a CMC.
What Happens Next — The Supreme Court
The Supreme Court heard arguments in April 2025 from lenders challenging the Court of Appeal's October 2024 ruling. The key questions before the Supreme Court are whether the Court of Appeal was right to extend liability beyond DCAs to all undisclosed commissions, and what the appropriate remedy should be. A judgment is expected in the second half of 2025.
If the Supreme Court upholds the Court of Appeal's broad ruling, the FCA will move to establish a formal redress scheme — similar to the PPI scheme — which would allow affected customers to receive automatic compensation without needing to make individual claims. If the Supreme Court narrows the ruling, claims may be limited to the DCA period only, reducing but not eliminating the compensation available.