FCA confirms car finance compensation scheme: latest

What’s the latest news?

The FCA finalised plans for an industry-wide compensation scheme in March 2026, designed to handle claims quickly and consistently. Around 12.1 million finance agreements could be eligible, with firms expected to pay out around £7.5 billion in total compensation. Most individual payouts are likely to be in the hundreds of pounds, with the FCA estimating an average of around £800 per agreement.

However, parts of the scheme have been temporarily suspended as of July 2026 due to legal challenges. Lenders are currently not required to calculate or pay compensation until the Upper Tribunal concludes its process. As a result, the original payment timetable has been paused.

When will payments start?

 The original timeline for payouts (which estimated money arriving in late 2026) no longer applies. The Upper Tribunal is scheduled to hear the legal challenges to the scheme either between 14 to 18 December 2026 or 16 to 26 February 2027.

• If the scheme is upheld: The FCA expects the first compensation payments to begin in 2027 at the earliest.
• If the scheme is overturned or modified: The process could face further delays or consultations, pushing payouts back to 2028 or beyond.

Do I need to do anything?

In most cases, no. Under the FCA’s proposed model, eligible customers will be contacted directly by their lender once the legal challenges are resolved.

You can still submit a complaint directly to your lender for free right now. While lenders do not have to calculate payouts yet, the FCA has required them to notify you if your complaint falls completely outside the scope of the scheme (meaning you are definitively not owed compensation).

A quick warning: With the scheme delayed and in the news, be extra vigilant against scammers posing as the FCA, claims management companies, or your lender. Genuine compensation schemes will never ask you for upfront fees.

Why is this happening?

At the centre of the issue is the relationship between three parties:

• the person buying the vehicle
• the dealer supplying it (acting as a broker)
• the finance company providing the credit

The problem arose where dealers received commission from lenders without clearly explaining how that might affect the deal being offered. Commission is a standard way for dealers to earn money when arranging finance. The issue here is how that commission was handled and disclosed, not the fact it existed.

What types of finance are affected?

The scheme covers most common types of motor finance, including:

• Personal Contract Purchase (PCP)
• Hire Purchase (HP)

It applies to agreements arranged through a dealer or broker between April 2007 and November 2024.

Who could be eligible?

You may be due compensation if you weren’t told about one of three types of commission arrangement:

Discretionary commission arrangements (DCAs) 

These allowed dealers to adjust the interest rate on a loan to earn more commission. These arrangements were banned in 2021, but the FCA is now reviewing agreements made before then. 

High commission deals 

Where commission was particularly large, with at least 39% of the cost of credit and 10% of the loan.

‘Tied’ lender arrangements 

Where a dealer suggested they would search for the best deal but didn’t disclose they had a preferred or exclusive lender.

Who is unlikely to get compensation?

Not all agreements will qualify, and you’re unlikely to receive compensation if:

• The commission involved was very small
• under £120 (before April 2014) or £150 after
• You had a 0% finance deal
• The commission didn’t affect the outcome of your agreement
• Your complaint has already been settled

Some very high-value loans are also excluded from the scheme, although these can still be pursued separately.

How much compensation could I get?

Should I use a claims management company?

The FCA has been clear that most consumers won’t need to use a claims management company. Because lenders will contact eligible customers directly, using a third party could mean giving up a portion of your compensation unnecessarily.

A new joint taskforce led by the Financial Conduct Authority (FCA), alongside the Solicitors Regulation Authority (SRA), Information Commissioner’s Office (ICO), and Advertising Standards Authority (ASA) are also warning consumers how to protect themselves and avoid unnecessary costs or scams - learn more about that task force here.

Can I still get car finance now?

Will this change how vehicle finance works?

The implications of the Supreme Court ruling will take some time to digest but, broadly, it has seemingly decided that apart from in one specific case dealers and finance providers were acting lawfully. So, basically, it will be business as usual.

You may, however, find you are provided with more information regarding any commission or payments retailers or brokers involved in vehicle finance receive in order to help you make an informed decision.

Speaking on behalf of lenders in his role as Director General of the Finance and Leasing Association, Stephen Haddrill told the BBC the ruling could end up making finance more complicated and therefore expensive for some consumers, especially those on lower incomes. How this shakes out remains to be seen.

Was there discretionary commission all types of vehicles or just cars?

What should I do when taking out car finance?

Whenever you look at a finance plan:

• Make sure you understand the interest rate and total cost
• Ask whether the dealer receives commission
• Compare deals where possible
• Take your time and don’t rush into a decision