Setting the Scene
The Financial Conduct Authority (FCA) has issued a warning to motorists across the UK regarding a rise in fraudulent activity linked to car finance compensation. As the regulator prepares to consult on whether a formal redress scheme should be introduced for consumers mis-sold car finance deals, opportunistic criminals are exploiting the uncertainty. The proposed scheme would cover motor finance agreements dating back to 2007, with the first compensation payments expected to begin in 2026.
Fraudsters are posing as lenders or official representatives, contacting drivers directly and convincing them they are owed compensation. The scam calls and texts appear legitimate, but their true purpose is to obtain personal and financial information for fraudulent use.
This FCA warning, published on 11 August 2025, comes at a sensitive time. With millions of drivers potentially affected by historic discretionary commission arrangements and speculation about compensation, consumers are understandably curious about their rights. Unfortunately, this curiosity is being exploited by scammers.
What is Actually Happening?
The scam hinges on a false sense of legitimacy. Fraudsters claim to represent car finance providers or associated organisations, telling victims they are entitled to compensation, in some cases as much as £16,000. To progress, victims are asked for sensitive personal details such as their full name, address, date of birth and bank details. This information can then be used for identity theft, unauthorised transactions or further targeted scams.
The FCA has confirmed that no formal compensation scheme currently exists. While a consultation on redress is expected to conclude in October 2025, neither the FCA nor lenders are contacting consumers directly to arrange refunds at this stage. Any legitimate scheme would only commence following the consultation process, with payments, if approved, not expected until 2026.
Accordingly, any unsolicited communication offering compensation should be treated as fraudulent and reported immediately.
Why This Matters
Between January 2007 and January 2021, many dealers and lenders used Discretionary Commission Arrangements (“DCAs”), whereby sales staff could adjust interest rates on finance agreements in exchange for higher commissions. The FCA banned DCAs in 2021, citing consumer detriment due to inflated borrowing costs, in accordance with CONC 4.5.
Since then, legal challenges and regulatory reviews have driven debate on whether customers should be compensated. Industry estimates suggest that redress could cost lenders between £9 billion and £18 billion, with millions of consumers potentially eligible. However, average individual compensation is likely to be under £1,000, a far cry from the inflated figures quoted by scammers.
Compounding the issue is low consumer trust. Surveys suggest fewer than one in four motorists believe lenders would handle compensation fairly. This distrust has fuelled reliance on Claims Management Companies (“CMCs”), some charging up to 36% in fees. Fraudsters exploit this distrust, presenting themselves as the fastest route to “guaranteed” payouts.
Protect Yourself: Safety Checklist
If you are contacted about mis-sold car finance compensation:
- Disengage immediately. Hang up or delete the message without responding.
- Do not share details. The FCA will not ask for your bank or ID details.
- Report the approach. Forward scam texts or calls to 7726 (Ofcom’s spam reporting service).
- Act quickly if compromised. If you have already shared information, contact your bank immediately and consider credit monitoring.
Above all, wait for official guidance. The FCA has confirmed it will publish clear instructions if and when a compensation scheme is approved. Consumers will then be able to make claims directly, without incurring fees.
Why This Guidance Matters
For motorists, the key message is that no legitimate compensation scheme is currently operating. By recognising scam tactics, protecting your personal data and awaiting official FCA guidance, you significantly reduce the risk of falling victim.
While redress may be available in 2026, it will be carefully regulated and not delivered through cold calls or text messages. Staying informed now ensures you are well positioned to benefit when legitimate processes are announced.
How Complyport Can Help
At Complyport, we work with financial services firms to ensure they remain compliant, protect consumers and manage regulatory risks effectively. Our services can provide critical support:
- Regulatory Advice and Horizon Scanning: We help firms interpret FCA consultations and policy changes, ensuring they understand the implications of proposed redress schemes and can prepare ahead of time. Our horizon scanning keeps you alert to emerging risks such as fraud trends and consumer protection issues.
- FCA Authorisation Support: Whether you are seeking new authorisation or variations of permission, we assist with applications for both Limited Permission (e.g. motor dealers and brokers) and Full Permission consumer credit firms. Our end-to-end support covers application preparation, business plans, compliance frameworks and ongoing regulatory readiness.
- Consumer Duty Implementation: With the Consumer Duty now in force, firms must evidence how they act to deliver good outcomes for customers. We provide tailored frameworks, training and monitoring solutions to ensure firms meet FCA expectations, particularly around fair treatment in product distribution and communications.
- Financial Promotions Review: Fraudsters exploit misleading messages. We help firms review and approve financial promotions in line with FCA rules (COBS/CONC), ensuring clarity, accuracy and compliance, reducing the risk of consumer harm and regulatory breaches.
- Training and Awareness Programmes: We deliver targeted staff training on fraud prevention, scam awareness and customer communication, equipping your teams to identify risks early and handle consumer concerns in line with regulatory standards.
Contact Our Experts: If your firm is managing FCA expectations around consumer credit, redress or fraud prevention, our compliance experts are here to support you. Get in touch with Complyport for tailored advice on staying ahead of regulatory developments.
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