The regulator Motor Finance Review: What It Means for You

The regulator’s motor finance review is one of the most significant regulatory events in UK financial services in years. For consumers who had car finance between 2007 and 2021, it could mean significant compensation. Here’s everything you need to know, explained clearly.

The Background

For over a decade, a practice called Discretionary Commission Arrangements (DCAs) was common in the UK motor finance industry. Car dealerships arranged finance on behalf of customers and were paid commissions by lenders. Under DCAs, dealers could increase the interest rate on a customer’s finance — and earn a larger commission as a result.

The regulator found this practice created a serious conflict of interest. Dealers were financially incentivised to charge consumers higher interest rates, often without disclosing this arrangement. In January 2021, the regulator banned DCAs outright.

The regulator’s January 2024 Review

In January 2024, the regulator announced a formal review into whether consumers with historic motor finance agreements were owed compensation for DCAs. This was a significant step — it signalled that the regulator had found evidence of widespread harm and was moving towards a sector-wide resolution.

As part of the review, the regulator paused the standard 8-week complaint response window. This meant that lenders were temporarily not required to respond to individual PCP complaints within 8 weeks. The regulator’s intention was to allow an orderly, industry-wide assessment rather than a fragmented series of individual responses.

For consumers, this was frustrating — it meant that people who had submitted complaints found their cases in a holding pattern. But it also signalled that the regulator was taking a systematic approach that could ultimately deliver better outcomes for consumers.

The October 2024 Court of Appeal Ruling

The most significant legal development came in October 2024, when the Court of Appeal delivered a landmark ruling in three joined cases involving Johnson v FirstRand Bank, Wrench v FirstRand Bank, and Hopcraft v Close Brothers.

The judges found that where a car dealer received a secret commission from a lender — and this commission was not properly disclosed to the customer — the lender had acted unlawfully. The ruling applied the principle of “secret profit”, which requires any agent acting on a customer’s behalf (in this case, the dealer acting as a credit broker) to disclose any financial benefit they receive from a third party.

The implications were enormous. The ruling suggested that virtually all DCA-based finance agreements could be subject to the same legal challenge, potentially opening up billions of pounds in compensation across the industry.

What the Ruling Means in Practice

For consumers, the Court of Appeal ruling strengthened the legal basis for PCP claims significantly. Prior to October 2024, there was some uncertainty about whether DCAs alone constituted unlawful conduct. After the ruling, the position was much clearer: undisclosed dealer commissions were unlawful, and affected consumers were entitled to remedies.

For lenders, the ruling created significant financial exposure. Major banks and finance companies began setting aside billions of pounds in provisions to cover potential compensation. Lloyds Banking Group, Santander, and Barclays were among those that disclosed substantial provisions.

For the regulator, the ruling confirmed the direction of the regulatory review and added urgency to the process of delivering a fair outcome for consumers.

The Supreme Court and What Happens Next

The Supreme Court is expected to deliver its final ruling in 2026. While Supreme Court outcomes are never certain, most legal observers expect the court to uphold the core findings of the Court of Appeal — that undisclosed dealer commissions were unlawful and that consumers are entitled to compensation.

The regulator is expected to issue its final guidance following the Supreme Court ruling, setting out how lenders must identify affected customers and pay compensation. There may be a formal redress scheme, similar to the PPI compensation scheme that paid out over £38 billion to UK consumers.

What Should You Do Now?

The question we hear most often is: should I wait for the regulator’s scheme, or submit a claim now?

Our advice is: submit your claim now. Here’s why:

Protect your position. Even if a formal redress scheme is established, you’ll be in a stronger position having already submitted a complaint.
The sooner you claim, the sooner you could receive compensation. If your lender settles before a formal scheme is in place, your claim could be resolved faster.
It costs nothing. Submitting a claim through Cash Me Up is free and takes 2 minutes. There’s no downside to starting now.
Time limits apply. While the regulator review has complicated the timeline, the general legal principle is that claims must be submitted within 6 years of the event. The earlier you act, the more secure your legal position.

The Scale of the Issue

To put the regulator motor finance review in context, compare it to the PPI mis-selling scandal. PPI (Payment Protection Insurance) was mis-sold to millions of UK consumers over many years. When the regulator finally ordered banks to proactively contact affected customers and pay compensation, the total payout exceeded £38 billion — making it the largest financial mis-selling scandal in UK history.

Independent analysts now believe the motor finance DCA scandal could rival PPI in scale. With estimates suggesting 40 million or more finance agreements could be affected, and individual compensation amounts ranging from hundreds to thousands of pounds, the total liability could be comparable or even exceed the PPI total.

A Quick Summary

What happened: Car finance lenders paid dealers secret commissions that incentivised them to charge customers higher interest rates.
When: Between April 2007 and January 2021, when DCAs were banned by the regulator.
Who’s affected: Anyone who had PCP or HP car finance arranged through a dealership during this period.
Legal position: The Court of Appeal ruled in October 2024 that this was unlawful. The Supreme Court is expected to deliver its ruling in 2026.
What to do: Submit your claim now via Cash Me Up — it’s free and takes 2 minutes.

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