Car finance compensation delayed: don't count on a payout to clear your debts

On 13 October 2026, the FCA confirmed that the Upper Tribunal will hear the challenge to its motor finance compensation scheme between 16 and 26 February 2027. An earlier date in December 2026 was dropped. For millions of people who had hoped for money this year, that’s another delay.

What’s happened

The FCA confirmed its final compensation scheme in March 2026. It covers car finance agreements taken out between 6 April 2007 and 1 November 2024 where the lender paid the broker commission and key features of that arrangement weren’t properly disclosed.

The FCA estimates that around 12.1 million agreements are eligible, with average compensation of about £830 per agreement.

The scheme was then challenged in court. Three lenders, Volkswagen Financial Services, Mercedes-Benz Financial Services and CA Auto Finance, brought challenges. So did Consumer Voice, a group that wants higher payouts.

Parts of the scheme have been suspended while the challenge goes ahead. That means:

• lenders don’t currently have to calculate or pay compensation under the scheme
• they must still prepare for the scheme and progress complaints as far as they can
• a judgment is expected in the months after the February hearing
• if the scheme is upheld and there’s no appeal, the FCA expects payments to begin in 2027

The FCA has also told lenders to plan for the possibility that the scheme, or parts of it, could be quashed. So there’s no guarantee it will survive in its current form.

What it means for you

The money isn’t coming soon. Even on the FCA’s best case, payouts won’t start before 2027, and appeals could push that back further.

The amount may be small. The FCA’s average is about £830, and its own analysis puts the median at £661, so half of eligible agreements are expected to get less than that. Not every agreement will qualify at all.

A payout may not be yours to spend. If you’re bankrupt, GOV.UK says a claim on a finance agreement taken out before your bankruptcy or discharge belongs to the Official Receiver. If you’re in an IVA, contact your insolvency practitioner before you make a claim or sign up with a claims company.

So if you’re struggling, don’t wait for compensation to fix things. Treat any payout as a bonus if it arrives.

You can complain for free

You don’t need a claims company or law firm. The FCA says you can complain directly to your lender for free, and it publishes a template letter on its car finance claims page. If you’re unhappy with the lender’s final response, you can go to the Financial Ombudsman Service, which is also free.

Claims management companies and law firms may charge up to 36% of any compensation, including VAT. The FCA also warns against signing up with more than one, because you could be charged more than once.

If you’re behind on car finance now

Missing payments while you wait for compensation is risky. The lender can add arrears to your credit file and, in time, take the car back. Here’s what to do instead.

1. Talk to your lender. Explain what’s changed and ask about reduced payments or a short break. FCA rules say lenders must treat you fairly.
2. Check how much you’ve paid. With hire purchase and most PCP deals, you can usually hand the car back under voluntary termination once you’ve paid half the total amount payable. Once you’ve paid a third, the lender generally needs a court order to repossess. Read can’t pay car finance?
3. Decide whether you need the car. Car finance is only treated as a priority if you need the car, for example to get to work. Rent, council tax and energy usually come first. Read priority debts.
4. Look at your debts as a whole. If car finance is one of several debts, a formal solution may help. Read can I keep my car in an IVA, DRO or bankruptcy? and debt solutions compared.

You can get free help from MoneyHelper and debt charities.

Frequently asked questions

When will car finance compensation be paid?

Not before 2027. The FCA says payments are expected to start in 2027 if the scheme is upheld and the judgment isn’t appealed.

Do I need a claims company to get compensation?

No. You can complain to your lender yourself for free. A claims company or law firm may take up to 36% of any payout.

Should I stop paying my car finance while I wait?

No. Missed payments can lead to charges, a damaged credit file and, eventually, the car being taken back. If you can’t afford the payments, talk to the lender and get advice.

Can I still complain now?

Yes. Lenders must still handle complaints as far as they can, even though they don’t currently have to pay compensation under the scheme.

Sources

• FCA, Motor finance legal challenge to be heard in February 2027
• FCA, Car finance claims
• FCA, PS26/3: Motor finance consumer redress scheme
• MoneySavingExpert, Car finance latest: Mass redress scheme legal challenge court date set for February 2027
• GOV.UK, Motor vehicle finance redress: the position of the Official Receiver