The letter arrives in a plain envelope, usually from Black Horse, MotoNovo or Santander Consumer Finance, and the wording is careful: your car finance agreement has been identified as one that may have involved a discretionary commission arrangement, and the lender is reviewing whether you're owed money back. For anyone who bought a car on finance between roughly 2007 and January 2021, that letter is worth reading twice rather than binning with the rest of the post.
What discretionary commission actually was
Before the Financial Conduct Authority banned the practice in January 2021, car dealers and brokers arranging finance were often paid on a sliding scale: the higher the interest rate they sold you, the bigger their cut. A dealer could set your APR anywhere within a range the lender allowed, and their commission rose in step with it. You were never told this was happening, and you had no way of knowing whether the rate you'd been quoted reflected your creditworthiness or the salesperson's incentive to load a few extra percentage points onto the agreement. This is different from ordinary commission, which most people accept as normal — a broker gets paid for arranging the deal, full stop. The discretionary model created a direct conflict of interest instead: the person advising you on the best rate available also profited from talking you into a worse one. It's the financial equivalent of a doctor being paid more for prescribing the more expensive drug, and it went largely unnoticed for over a decade because most buyers assumed a finance company's rate was simply what it was. Dealers weren't required to disclose the arrangement, lenders didn't police it closely, and the FCA itself only moved to ban it after its own 2019 review found a clear pattern of customers paying more than they needed to.
The Supreme Court, in plain terms
The legal fight didn't move in a straight line. In October 2024, the Court of Appeal ruled that undisclosed commission of this kind breached a lender's fiduciary and disclosure duties, a decision that sent shockwaves through the sector and briefly threatened compensation on a scale to rival PPI. Lenders appealed to the Supreme Court, and in August 2025 the justices narrowed that finding considerably — they rejected the idea that dealers owed drivers a fiduciary duty simply by arranging finance, which would have made almost any undisclosed commission unlawful regardless of size.
What survived the appeal mattered more for most borrowers than the headlines suggested at the time. The Court still found that some commission arrangements were unfair under section 140A of the Consumer Credit Act 1974 — specifically where the commission was high relative to the loan, poorly disclosed, or where the relationship between dealer and lender created a clear conflict the customer never had a chance to weigh up. That narrower but real finding is what pushed the FCA to stop waiting for years of individual court claims and instead build one redress scheme covering the whole market.
How the redress scheme actually works in 2026
The FCA opened its industry-wide scheme earlier this year after a consultation that ran through late 2025, and lenders are now required to review historic agreements themselves rather than wait for customers to complain. That's the single biggest practical difference from PPI, where the burden of finding out you'd been mis-sold fell almost entirely on the customer.
Who's covered
- Anyone with a hire purchase, personal contract purchase or personal loan used to buy a car, motorbike or van through a dealer between 6 April 2007 and 28 January 2021
- Agreements where the dealer had discretion to set or adjust the interest rate, not a fixed-commission structure
- Both settled and still-running agreements — you don't need to still own the car, and you don't need to still be paying off the loan
If your finance was arranged directly by a bank with no dealer involvement, or the commission was a flat, disclosed fee regardless of the rate you were offered, you're very likely outside the scheme. Worth checking regardless, because plenty of people assume they don't qualify simply because they can't remember the paperwork.
How compensation is worked out
Lenders are calculating redress by comparing what you actually paid against a reasonable estimate of what the rate would have been without the discretionary uplift, then adding simple interest to the difference. That interest is currently set at 8% a year, the same rate the Financial Ombudsman Service applies to most redress cases, and it's backdated to when you first started overpaying rather than to when the scheme opened. For someone who financed a £15,000 car and had a rate loaded by a couple of percentage points, that can still mean a payout running into several hundred pounds once years of interest are added on. For older, larger or longer agreements it climbs from there, sometimes into four figures once the interest has compounded over a decade. There's no fixed table you can look up in advance, because the calculation depends on your specific agreement, the dealer's commission structure at the time, and how long the loan has been running. Some lenders are also deducting any refund already paid through an earlier, smaller compensation exercise, so it's worth asking whether your figure has already had a previous payout netted off.
Timeline
Lenders have committed to writing to affected customers on a rolling basis through 2026 and into 2027, prioritising the largest lenders first — Black Horse, MotoNovo, Santander Consumer Finance and Close Brothers Motor Finance are furthest along. If you haven't heard anything yet, that doesn't mean you're not owed money; it may just mean your lender hasn't reached your agreement in the review queue.
What to actually do about it
Don't wait for a letter if you'd rather check now, and don't pay a claims management company a slice of your payout to do something you can do yourself for free.
- Dig out your original finance agreement, or ask the dealer or lender for a copy if you no longer have it — you'll need the agreement date and the lender's name
- Contact the lender directly and ask whether your agreement involved a discretionary commission arrangement; most now have a dedicated portal or phone line for exactly this query
- If the lender rejects your claim and you think that's wrong, escalate to the Financial Ombudsman Service — it's free, and it's already ruled on thousands of similar disputes
- Keep any correspondence with the dealer from the time of sale, even a text message about the rate, in case it's needed later
Claims management firms will find you before the lenders do — cold calls and text messages referencing "car finance compensation" have picked up sharply this year. They typically take 20–30% of whatever you're awarded for filling in a form you could submit yourself in ten minutes. Unless your case is genuinely complicated, that's money handed away for nothing.
How this compares with PPI
PPI took the best part of a decade to unwind, cost the industry more than £50 billion in total redress, and only moved at speed once the FCA imposed a hard claims deadline in August 2019. Motor finance commission redress is being handled differently on purpose: lenders review first, customers don't have to file a claim to be found, and there's no single deadline forcing a last-minute scramble the way there was with PPI's final months. Whether that makes the process faster is still an open question — the scheme is only months old, and the FCA itself has acknowledged that some lenders are moving through their back-books faster than others.
The one thing this saga does share with PPI is scale. Millions of car finance agreements were arranged through dealers in the period covered, and even a modest average payout adds up to a redress bill lenders have been provisioning for since the Court of Appeal ruling first landed. If you financed a car through a dealer any time before 2021, it's worth ten minutes of your time to find out whether you're one of them — and worth doing it through the lender or the Ombudsman, not through whoever texted you first.