FCA car finance compensation: Legal challenges delay payments for drivers

Drivers owed compensation over mis-sold car finance are unlikely to receive payments until 2027 due to ongoing legal challenges.

The Financial Conduct Authority (FCA) confirmed a motor finance redress scheme in March 2026 following a review of undisclosed commissions in motor finance agreements.

Around 12 million agreements are expected to be eligible for compensation, the regulator said.

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Lenders have been ordered to work on how they will deal with the complaints, but the scope of the scheme is now being challenged, which the regulator has warned could delay payments.

The FCA is facing four separate legal challenges, including from consumer group Consumer Voice, which is arguing the FCA has designed the redress scheme “with greater regard to the impact on lenders than to what is fair and reflective of what consumers actually lost”.

The other three come from lenders who are challenging the cost of the redress scheme to their businesses: Volkswagen Financial Services, Mercedes-Benz Financial Services and Crédit Agricole Auto Finance.

In an open letter to Dame Meg Hillier, chair of the Treasury Committee, sent on 8 June, Nikhil Rathi, chief executive of the FCA, said the ongoing legal challenges mean compensation payments for drivers are unlikely to be made until 2027.

If the challenges are successful and the redress scheme is “struck down in whole or part, we will need to decide what to do next,” Rathi added.

In practical terms, this could result in the FCA consulting on a revised scheme meaning compensation payments likely being made from midway through 2027.

A redress scheme could also be ditched entirely, with drivers encouraged to put their complaints to the Financial Ombudsman Service (FOS) or go through the courts.

If you are worried about delays, the FCA’s advice is to still complain to your lender so your complaint is raised in time if the scheme goes ahead.

How does the FCA’s motor finance scheme work?

The industry-wide compensation scheme was launched amid evidence finance firms failed to disclose commissions to motorists on car finance agreements.

This led to unfairness, with consumers denied the chance to negotiate or find a better deal and, in some instances, paying more for their loan.

Just over 12 million drivers who unknowingly paid commissions on car finance agreements are now eligible for compensation. The FCA estimates 75% of qualifying consumers will make a claim. If so, the total redress paid would be £7.5 billion.

Motor finance loans taken out between 6 April 2007 to 1 November 2024 are covered by the FCA’s compensation scheme.  

Under the scheme, firms that need to compensate drivers have been given a short implementation period to prepare for the claims process. This will be up to:

• 30 June 2026 for motor finance loans taken out from 1 April 2014
• 31 August 2026 for those agreed earlier 

Motor finance lenders will then have three months from the end of the implementation period to inform drivers whether they’re owed compensation and how much.

Drivers who have already complained, or who complain before the end of the relevant implementation period, will be compensated sooner, so it is worth getting your complaint in early if you believe you have a valid claim.

Lenders will only actively contact people who haven’t complained if they are likely to be owed money and they have six months from the end of the implementation period to do so.

This avoids unnecessary and potentially confusing communication with people who won’t get compensation, the FCA said. Anyone who is not contacted has until 31 August 2027 to make a claim themselves.  

However, claims for high value loans –  amounts higher than 99.5% of other loans that year – are not covered by the FCA’s scheme, which is designed for the mass market. But these drivers can still complain to firms and the Financial Ombudsman Service if they think they have a valid claim.

Will I get compensation for motor finance?

Drivers will only be compensated if they were not told clearly that either:

1. Their dealer or broker set the loan interest rate to earn more commission (using a discretionary commission arrangement (DCA).
2. The commission was high – at least 39% of the total cost of the credit and 10% of the overall loan.
3. The dealer or broker was using one lender or gave one lender the right of first refusal, (a so-called tied arrangement) – except where lenders can show there was a clear relationship with a manufacturer and franchised dealer. For example, where they shared a common or similar name.

There will be some exceptions, with cases considered ‘fair’ and not due compensation, if: 

• The commission was £120 or less for agreements beginning before 1 April 2014 and £150 or less from that date. Commission amounts below those levels are unlikely to have influenced the broker’s behaviour or consumer’s decision, the FCA said.
• The borrower wasn’t charged interest.  
• The DCA wasn’t used to earn discretionary commission.
• The lender can prove, in certain limited circumstances, it was fair not to disclose one of the arrangements above or that the consumer did not suffer any loss. For example, if no better deal was available.

However where the commission was very high – 50% of the total cost of credit and 22.5% of the loan – and another relevant factor of unfairness existed, consumers will receive the commission paid.

The redress scheme, in its current form, does apply to agreements held by drivers who have now died. Beneficiaries can contact lenders directly and lenders are expected to get in touch proactively as well. The FCA says lenders are likely to ask for copies of wills or grant of probates to ensure compensation is paid to the right person.

How much motor finance compensation will I get?

If the redress scheme proceeds, the FCA has said drivers can expect around £830 compensation per motor finance agreement, however, this is an average figure and you may receive less or more.

For most people, compensation will be made up of two parts, the average of:

• The commission paid; and
• The estimated loss, based on a percentage discount of the interest (APR) they paid – 17% for cases from April 2014 and 21% for earlier agreements, to reflect greater loss then. 

To avoid drivers being put back in a better position than they would have been had they been treated fairly, compensation will be capped in around one in three cases.

Interest will be paid on compensation, based on the annual average Bank of England base rate per year plus 1%, at a minimum of 3% in any year.

What if the motor finance firm ignores my complaint?

The FCA has established a dedicated supervisory team, led by a director, to monitor if firms are meeting the scheme's rules and act if they’re not. If people disagree with their firm's decision, they can complain to the FOS, which will be able to assess whether the FCA scheme rules have been followed. 

The FCA has also joined with the Solicitors Regulation Authority, Information Commissioner’s Office and Advertising Standards Authority to launch a taskforce to tackle poor handling of motor finance claims by some claims management companies (CMCs) and law firms.

There’s no need to use a law firm or claims management company – people can submit their own complaint using a template letter on the FCA’s website. Those who choose to use a claims manager or law firm could lose more than 30% of any compensation owed, the regulator warned.

The FCA has also warned motorists about misleading car finance ‘money tips’ adverts put out by CMCs and law firms on social media.

The regulator said the content in some of these ads is sold as impartial advice without mentioning it comes from a business. Other ads are using logos, imagery and references from well-known companies, media outlets, public bodies or figures falsely claiming they’re endorsing the advice.

Some of the ads are also not informing consumers they can make mis-sold car finance claims for free.

Can I go to the Financial Ombudsman instead?

The FCA will monitor if firms are meeting the proposed scheme’s rules and will act if they’re not. If people disagree with their firm’s decision, they can ask the FOS to assess whether the scheme rules have been followed.

Those with a motor finance complaint about inadequate disclosure of a commission or tie that doesn’t fall within the three criteria – and who are therefore not owed compensation under the proposed scheme – would only get a different outcome from the FOS if it decides the scheme rules weren’t followed.

People in this situation could still make a claim in court if they believed they had lost out.

Consumers can choose not to take part in the FCA’s compensation scheme and instead go to court, where they may get more or less compensation, based on the facts of their case.

However, the outcome of a court claim is uncertain and accounting for legal fees, many consumers could end up with less.

I think I have a valid motor finance claim – what should I do?

There is information on how to complain for free on the FCA website.

If you don’t complain and are owed money, your lender should contact you by end of 2026 for post 1 April 2014 agreements and end of February 2027 for agreements that started between 6 April 2007 and 31 March 2014.

Watch out for scams. You can check you are dealing with your genuine lender using the contact details listed on the FCA website. You shouldn’t pay a fee to access compensation, or share sensitive details such as your PIN or online banking details.