Regulators have announced that millions of drivers who were mis-sold car finance agreements must wait until at least 2027 to receive any compensation. The Financial Conduct Authority (FCA) stated that average payouts are expected to be approximately £829, but the timeline for distribution has been significantly disrupted by ongoing legal disputes.
The FCA’s proposed compensation scheme covers roughly 12 million car loans, representing just over 40% of all agreements taken out between April 2007 and November 2024. The regulations were introduced to address discretionary commission arrangements (DCAs), which the regulator banned in 2021. These deals allowed dealers to receive commissions based on the interest rates charged to customers, creating an incentive for buyers to be placed on higher-than-necessary rates without their knowledge.
Legal challenges to the scheme, brought by lenders including Volkswagen Financial Services, Mercedes Benz Financial Services, and Credit Agricole Auto Finance, are scheduled to be heard at the UK’s Upper Tribunal from 16 to 26 February 2027. Consequently, no compensation payments will be made before 2027 while the courts review the program. Lenders will be relieved of their obligation to calculate or disburse funds until the legal process concludes.
If the courts were to overturn the FCA’s scheme, the regulator estimated that up to 19 million individual complaints would need to be processed separately. This alternative scenario would take an estimated three years and cost lenders an additional £6 billion. The FCA has committed to defending the program robustly, describing it as the most effective method for resolving a widespread and complex issue.
Complaints have already been submitted regarding four million finance agreements, meaning those individuals do not need to take further action. However, the regulator has urged other eligible consumers to contact their lenders directly rather than relying on third-party claims management companies. Nikhil Rathi, chief of the FCA, warned that many law firms seek to retain 30% of any compensation, whereas the regulator’s central scheme is free for consumers.
Consumer Voice criticized the scheme for leaving “too many people short-changed,” while the Finance and Leasing Association expressed concerns but declined to launch a legal challenge. Major banks such as Santander, Barclays, and Lloyds have accepted the scheme despite raising objections about the proportionality of redress. The final plan was influenced by a Supreme Court test case involving Marcus Johnson, whose 2017 finance deal for a Suzuki Swift was deemed unfair due to high commission payments and misleading information regarding the relationship between the dealer and the finance firm.
Finally, a free process instead of letting claims management companies take 30% of my payout. Wish I’d known this sooner.
Another two-year wait? My car is probably obsolete by then. Hope that £829 average covers the inflation we’ve suffered.