Compensation for motor finance mis-selling to be delayed

The Financial Conduct Authority (FCA) has delayed the findings of its review into motor finance mis-selling until May 2025.

Its report into car finance mis-selling was initially due this September.

But the industry regulator said it needs extra time to analyse the data it has collected from firms and properly assess the outcome of the legal case brought by Barclays after the Financial Ombudsman decided it hadn’t treated customers fairly in their car finance agreements.

It has also paused the eight-week deadline for motor finance firms to provide a final response to customer claims until 4 December 2025.

The FCA launched its investigation into whether motor finance customers had been overcharged because of the use of discretionary commission agreements (DCAs) earlier this year.

DCAs helped banks and lenders providing car finance to allow dealers to set their own interest rates on repayment plans. This meant car dealers could undercut the bank or lenders’ preferred rate to secure a sale, or charge more so that they could earn higher commission.

The practice was banned in 2021. And the FCA is now investigating to see how many car finance customers were affected by DCAs after it was outlawed two years ago.

The investigation follows two complaints – one of which was upheld against Black Horse where a customer paid 10.5% APR. The other was against Clydesdale (previously owned by Barclays) who charged a customer 8.9% APR on their motor finance. In both rulings, the financial ombudsman said that the lending banks would have accepted much lower rates and therefore the consumer wasn’t treated fairly.

It’s believed that DCAs cost motor finance customers an extra £1,000 in interest charges over a typical four-year repayment plan on a £10,000 loan.

After the FCA has finalised its report, millions of drivers who used finance to buy their cars are expected to be entitled to compensation. Analysts believe that payouts could reach as much as £16bn.