Millions of UK motorists who may have been mis-sold car finance agreements will have to wait until at least 2027 for compensation after legal challenges delayed the Financial Conduct Authority’s redress scheme.
The FCA expects eligible consumers to receive an average of £829 per affected agreement under the programme. The total cost of compensation, including administration, could reach £9.1 billion.
The delay follows legal challenges from three finance providers: Volkswagen Financial Services, Mercedes-Benz Financial Services and Crédit Agricole Auto Finance. The UK’s Upper Tribunal is scheduled to hear the challenges from 16 to 26 February 2027, leaving lenders unable to calculate or pay compensation under the scheme until the legal process concludes.
Who Is Eligible for Compensation?
The FCA’s proposed scheme covers approximately 12 million car finance agreements taken out between April 2007 and November 2024, representing just over 40% of agreements during that period. Individual payouts will depend on the level of harm suffered by each customer.
The issue centres on commission arrangements between car dealerships and lenders. Some dealers received commissions linked to the interest rates charged to customers, creating an incentive to arrange more expensive loans. These discretionary commission arrangements were banned by the FCA in 2021, after concerns that customers were often not informed about them.
Other agreements may qualify because dealerships received unusually high commissions or because exclusive arrangements between dealers and lenders prevented customers from receiving accurate information about alternative finance options.
The Supreme Court’s consideration of three test cases helped shape the FCA’s final compensation proposals. One involved Marcus Johnson, who bought a Suzuki Swift in 2017. The court found that the size of the commission and the apparent lack of transparency surrounding the relationship between the dealer and lender made his finance agreement unfair.
What Should Motorists Do?
Approximately four million complaints have already been submitted. Those customers do not need to make another complaint, although the timetable for receiving decisions and payments is now uncertain.
Motorists who have not complained are encouraged to contact their finance provider directly rather than pay a claims management company. The FCA’s scheme is free to use and does not require consumers to hire a lawyer or take their cases to court.
The regulator has warned consumers to watch for scammers offering fake compensation services. FCA chief executive Nikhil Rathi has also cautioned that some law firms may seek as much as 30% of a consumer’s compensation in fees.
The FCA says it will defend the scheme as a lawful and practical way to resolve the widespread issue. If the programme is overturned, the regulator estimates that up to 19 million complaints could require individual handling, taking three years and costing lenders an additional £6 billion.
The lending industry is expected to fund the compensation and administrative expenses, and several major lenders have already set aside billions of pounds for potential payouts. Santander, Barclays and Lloyds have accepted the scheme, although they have questioned whether the proposed compensation is proportionate to the harm suffered.
For affected motorists, keeping finance paperwork, updating contact details with lenders and avoiding unnecessary third-party fees may help them prepare while the legal proceedings continue.
