Car finance compensation scheme delayed until 2027 due to legal challenges
The UK's financial regulator has been forced to partially suspend the £9.1 billion scheme designed to compensate victims of the car finance mis-selling scandal, delaying payouts for millions of motorists.
The scheme brought forward by the Financial Conduct Authority (FCA), which regulates the financial services industry in the UK, was due to begin issuing payouts this summer, averaging at £830 per case. However, a court has ordered the FCA to suspend parts of its scheme after several legal challenges were made against it.
The challenges have been made by three lenders and a consumer group: Crédit Agricole Auto Finance, Mercedes-Benz Financial Services, Volkswagen Financial Services and Consumer Voice. The latter argues that the scheme "risks underpaying drivers by not reflecting what they lost".
The UK's Upper Tribunal will hear the challenges either in December or February next year, with a judgement expected in the following months.
The FCA said firms are not required to calculate or pay out any compensation, or contact people owed money under its scheme, until the process resumes following the hearing. The regulator also said it would decide what to do next if the scheme is overturned in whole or part.
"A compensation scheme is the simplest route for consumers and the most efficient way for lenders to put things right," it said. "However, if we were to seek views on a revised scheme that could face further legal challenge, and compensation could be delayed until 2028 or beyond.
"We want to secure fair compensation for consumers as quickly as possible. So, if the scheme is overturned, we may instead tell lenders to resolve complaints individually under the usual complaints process. Lenders would need to respond within eight weeks, and you could take your complaint to the Financial Ombudsman Service if you think you haven’t been treated fairly."
In the meantime, lenders are still required to reply to those who have complained but who are not owed money under the scheme. Those who complained before 30 June 2026 should be contacted by 18 November 2026, while those who complain by 31 August 2026 should be contacted by 18 January 2027. Anyone who complains after those dates and is not owed compensation will be contacted within five months.
If you think you may have been mis-sold car finance, the FCA recommends submitting a claim directly to the lender, rather than using a third-party claims management or law firm, as these may charge you more than 30% of any compensation owed.
The redress scheme was announced in March to compensate buyers who took out 'unfair' car finance deals between April 2007 and November 2024.
The compensation package comes after a Supreme Court ruling in August 2025 that stated car finance deals with hidden commissions from lenders to dealers were not unlawful, overturning a decision that could have led to tens of billions in payouts to victims of these deals.
However, the court upheld a decision that granted compensation to a claimant who had paid particularly large commissions and had entered into an 'unfair' relationship with the lender. This means that there is potential for victims to claim where the situation was unfair, such as where interest rates were not properly disclosed.
Previously, the FCA had estimated that victims could receive around £700 per deal, but it later confirmed that payouts will average at around £830 per agreement. The majority of payouts were expected to be sent out this year, with most of the rest paid by the end of 2027.
The FCA's scheme allows people to complain directly and potentially receive compensation, rather than going through the legal system.
How will the scheme work?
The scheme will cover buyers who took out car finance agreements between 6 April 2007 and 1 November 2024 in which commission was payable by the lender to the broker.
The FCA advises that customers who weren't informed of key information about their agreement (for example, about commission payments) should complain to their lender now. Guidance on how to complain can be found on the FCA's website.
While some claims management or law firms are offering to make complaints on behalf of potential victims, these customers are able to submit their own complaint to their lender via the FCA website using the template letter provided. The FCA warns that customers who go through a claims management or law firm may end up losing a significant amount of the compensation they're owed through legal costs.
Now that the scheme is live, affected customers who have already complained will be contacted by their lender within a set timeframe depending on when the finance was taken out and when the complaint was made. Those who haven't complained will be contacted by their lender within six months and given six months to decide to opt-in to the scheme.
Those who aren't contacted within six months will have a year to make a claim directly to their lender.
Compensation will only be given under the scheme if the buyer wasn't told details of at least one of three arrangements between the lender and broker: a discretionary commission arrangement; a high commission arrangement (35% of the total cost of credit and 10% of the loan); or a contractual agreement or tie between the lender and broker which provided exclusive or near exclusive rights to lenders to provide credit.
The FCA confirmed it will monitor firms under the scheme and take action if they are not meeting the rules.
The scheme is set to cover agreements dating back to 2007, with the responsibility falling on firms to make customers aware where they may be eligible and what they need to do.
Customers may choose not to take part in the FCA's scheme and take their case to court instead, where the amount of compensation they receive will be based on the facts of their case.
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