The Financial Conduct Authority (FCA) has paused its car finance compensation scheme, delaying payouts for millions of drivers. The watchdog had previously estimated that around 12.1 million unfair motor finance deals would be due an average of £829 each in compensation, with payments originally planned to begin this year.
Legal Challenges Force Suspension
The FCA confirmed that the Upper Tribunal will hear legal challenges against its redress scheme in either December 2026 or February 2027. Until the legal process concludes, lenders will no longer need to calculate or pay compensation. The scheme covers car finance agreements taken out between April 6, 2007, and November 1, 2024, where commission was paid by the lender to the broker, and was expected to cost the industry £9.1 billion.
Potential Timelines for Payouts
If the scheme is upheld and the judgment is not appealed, payments should begin in 2027. However, if the courts decide to overturn the programme, the FCA said it will need to decide what to do next. Compensation could be delayed until 2028 or beyond if a revised scheme is published and faces further legal challenges. If overturned, the FCA may allow lenders to resolve complaints individually through the usual process, where lenders have eight weeks to respond before complaints can be taken to the Financial Ombudsman Service.
Parties Behind Legal Challenges
Legal challenges have been launched by four commercial parties: Consumer Voice (represented by Courmacs Legal), Volkswagen Financial Services, Mercedes-Benz Financial Services, and Crédit Agricole Auto Finance.
Who Is Affected and Next Steps
The FCA said those who were mis-sold include agreements with a discretionary commission arrangement, a high rate of commission, or a contractual tie not properly disclosed. Despite the pause, lenders must still inform drivers if they are not due compensation. Lenders must notify motorists by November 18, 2026, if their agreement began on or after April 1, 2014, and they complained by June 30, 2026. For agreements before April 1, 2013, with complaints by August 31, 2026, lenders must confirm ineligibility by January 18, 2027.
