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Car finance compensation is on hold until a February court hearing. What it means for you
The FCA's car finance compensation scheme is partly suspended while a legal challenge is heard from 16 to 26 February 2027. No compensation will be paid until that is settled, but some letters are still coming and you can still complain for free.
Published 26 October 2026Last checked 26 October 2026UK-wideFrom Financial Conduct Authority
Illustration generated with AI
What's happening
The Financial Conduct Authority (FCA) set up a scheme to compensate people who were treated unfairly on car finance taken out between 6 April 2007 and 1 November 2024. Four parties have challenged it, and on 13 October 2026 the FCA confirmed the case will be heard by the Upper Tribunal from 16 to 26 February 2027. Until the legal process ends, lenders do not have to work out or pay compensation, so payments are expected in 2027 at the earliest if the scheme is upheld.
The question: What does the February 2027 legal challenge mean for car finance compensation, and what can I do now?
The policy
- Announced by
- Financial Conduct Authority
- Announced on
- 2026-10-13
- Stage
- In force, partly suspended pending an Upper Tribunal hearing
- Takes effect
- Rules took effect on 31 March 2026. Compensation is on hold until the legal process ends.
- Complained before the scheme started, agreement from 2014 onwards: Lender must send a 'not owed' letter by 18 November 2026 if nothing is due. Otherwise wait for the hearing outcome.
- Never complained, agreement before April 2014: Originally due to be contacted by lenders by about the end of February 2027. Compensation is on hold; complaining to the lender now is free.
- Signed up with a claims firm: Same wait for compensation, and the firm may take up to 36% including VAT.
36% of an £830 average payout is about £299 (illustrative calc)
This applies to you if…
- You took out finance to buy a car, motorbike, van or campervan between 6 April 2007 and 1 November 2024
- It was a regulated agreement such as hire purchase or personal contract purchase (PCP)
- The dealer or broker earned commission that was not properly explained to you, such as a commission arrangement that let them set your interest rate, a very high commission, or a tie to one lender
Not for you if…
- Leasing (personal contract hire)
- Agreements over £25,000 taken out before 6 April 2008
- Agreements where no interest was charged
- Cases where compensation has already been accepted
- Cases already decided by the Financial Ombudsman or a court
- Very large loans at the top of each year's range, such as over £82,000 in 2024, unless the vehicle was adapted for a disabled driver or passenger
What it's worth
FCA estimate. The FCA put total compensation at about £7.5bn across about 12.1 million eligible agreements, assuming three in four eligible people take part. Interest is added at the average Bank Rate plus 1%, at least 3% a year.
Illustrative calc: what a claims firm fee could take
- Suppose the compensation is the FCA's average of about £830.
- The FCA says claims firms and law firms may charge up to 36% including VAT.
- 36% of £830 is about £299.
- You would keep about £531, compared with the full £830 if you complain to the lender yourself.
A fee of about £299 on an average payout
Illustrative calc only. Actual payouts and fees vary.
How to do it
- 1
Check old bank statements or paperwork, ask the dealer, or check your credit file. The FCA lists Equifax's Car Finance Checker and free credit file checks from Experian or TransUnion.
- 2
Complain to the lender directly if you are concerned
This is free. The FCA website lists lenders' contact details. Lenders must still record and progress complaints during the suspension.
Takes about About 15 minutes
- 3
Lenders must still tell people who complained if they are not owed compensation. Letters about compensation itself will wait until the legal process ends.
- 4
If you disagree with your lender's decision, go to the Financial Ombudsman
This is free. Use the deadline given in your lender's letter.
- 5
If you are already signed up with a claims firm or law firm, check the terms
Exit fees must be reasonable. If you were signed up without agreeing or were misled, you may be able to leave without paying. Complain to the firm first, then after eight weeks to the Legal Ombudsman (law firms) or the Claims Management Ombudsman (claims companies).
Deadline
Lenders' 'not owed' letters due for complaints made by 30 June 2026 on agreements from April 2014 — 18 November 2026 (in 23 days)
For earlier agreements complained about by 31 August 2026, the date is 18 January 2027. The FCA allows lenders up to seven weeks' leeway.
The catches
No letter does not mean you are owed money
The FCA says the absence of a 'not owed' letter should not be read as a sign that compensation is coming.
Claims firms charge a share
The FCA says fees can be up to 36% including VAT. Signing up with more than one firm can mean paying more than one fee.
Scam callers
Complaining to your lender is free, and the FCA says it will never ask you to transfer money. Never share PINs or passwords with anyone.
The outcome could change things
If the tribunal strikes down all or part of the scheme, the FCA says complaints might be handled one by one or under a revised scheme, which could push payments to 2028 or later.
Going to court yourself
You can choose to go to court instead, but the FCA warns you may end up with less after legal fees.
Illustrative example
Three drivers, three positions
Priya complained in 2025 about a 2019 PCP deal. Dave never complained about a 2011 hire purchase deal. Sam signed up with a claims firm in 2024.
- Priya's lender has looked at her case. If she is not owed anything, her letter should arrive by 18 November 2026. If she may be owed something, she waits for the outcome of the hearing.
- Dave's agreement is in the earlier part of the scheme. Under the original timetable, lenders had until the end of February 2027 to contact people in his position. Payments are now on hold either way.
- Sam's claims firm keeps a share of any payout. He checks his contract for the fee and exit terms.
None of them will get compensation before the legal process ends. Priya and Dave keep the full amount if they are paid; Sam keeps what is left after the fee.
Illustrative example. Names and details are made up.
What this means for…
- Drive a petrol or diesel car: If you bought a car on hire purchase or PCP between April 2007 and November 2024, you could be covered. Payment, if any, now waits for the February 2027 hearing.
- Borrowing or in debt: If you are bankrupt or in an IVA, tell your lender and your insolvency practitioner about any car finance complaint.
Common misreadings
You might hear: The scheme has been scrapped.
Actually: It is still in force but partly suspended. The FCA says it will defend the scheme at the hearing.
You might hear: You need a claims firm to be included.
Actually: Complaining to your lender is free, and the scheme was designed so people do not need a claims firm.
You might hear: Payouts were due this year.
Actually: The FCA's March 2026 plan expected payments in 2026, but no compensation is payable until the legal process ends. If the scheme is upheld and not appealed, the FCA expects payments to start in 2027.
Where the UK nations differ
- UK-wide
- The scheme covers people who lived anywhere in the UK when they took out the agreement.
- England, Wales and Northern Ireland
- Time limits for court claims are generally six years, counted from different points in England and Wales and in Northern Ireland.
- Scotland
- The FCA's rules note that the usual time limit (prescription) does not apply to these claims in the same way.
What you could do
had car finance between 2007 and 2024 and have not complained
Find out who your lender was and complain to them directly. It is free.
are signed up with more than one claims firm or law firm
Check each contract and consider leaving extras early to avoid paying more than one fee.
get an unexpected call or message asking for money or passwords to release car finance compensation
Do not pay or share any PINs or passwords. Contact your lender using details you already have.
Timeline
31 March 2026
Scheme rules take effect
2 July 2026
Upper Tribunal partly suspends the scheme
13 October 2026
FCA confirms the February 2027 hearing
18 November 2026
'Not owed' letters due
For complaints made by 30 June 2026 about agreements from 1 April 2014.
18 January 2027
'Not owed' letters due for earlier agreements
For complaints made by 31 August 2026 about agreements before 1 April 2014.
16 February 2027
Upper Tribunal hearing starts
Runs to 26 February 2027. A judgment is expected in the following months.
The detail
The rules
- The scheme covers regulated car finance agreements taken out between 6 April 2007 and 1 November 2024, split into two schemes either side of 1 April 2014.
- An agreement is treated as unfair if the customer was not properly told about a discretionary commission arrangement, high commission (at least 39% of the total cost of credit and 10% of the loan), or a tied arrangement with one lender.
- Commission of £120 or less (before April 2014) or £150 or less (from April 2014) is treated as fair.
- The challenge was brought by Volkswagen Financial Services, Mercedes-Benz Financial Services, Crédit Agricole Auto Finance and Consumer Voice. The FCA says the challengers argue in different directions, some that the scheme is too generous to consumers and others that it is too generous to lenders.
- During the suspension, lenders do not have to calculate or pay compensation or send compensation letters, but must still send 'not owed' letters and progress complaints.
References
- FCA PS26/3: Motor finance consumer redress scheme rules, March 2026
- FCA statement, 13 October 2026: Legal challenge to be heard 16 to 26 February 2027
- FCA statement, 2 July 2026: Scheme partly suspended; payments not before legal process ends
Words explained
- Discretionary commission arrangement
- A deal that let the car dealer or broker raise your interest rate to earn more commission.
- Redress scheme
- A set of rules that makes firms check past cases and pay compensation without each person going to court.
- Upper Tribunal
- A court that hears appeals and challenges, here on whether the FCA's scheme is lawful.
- PCP (personal contract purchase)
- Car finance with lower monthly payments and a large optional final payment to own the car.
- Claims management company
- A firm that makes a complaint on your behalf in return for a share of any payout.
In short
Car finance compensation is on hold until a legal challenge is heard from 16 to 26 February 2027. If the FCA's scheme survives, payments are expected in 2027, averaging about £830 an agreement. You can still complain to your lender for free, and you don't need a claims firm that could take up to 36%.
Related dates
- 18 Nov Car finance 'not owed' letters due (agreements from April 2014)Deadline · in 23 days
- 18 Jan Car finance 'not owed' letters due (agreements before April 2014)Deadline · in 84 days
- 16 Feb Car finance compensation scheme legal challenge hearingDecision · in 113 days
Sources
- Motor finance legal challenge to be heard in February 2027, Financial Conduct Authority (2026-10-13)
- Motor finance scheme partially suspended, Financial Conduct Authority (2026-07-02)
- Car finance complaints, Financial Conduct Authority (2026-10-13)
- Millions of car finance customers to get payouts as FCA goes ahead with compensation scheme, Financial Conduct Authority (2026-03-30)
- PS26/3: Motor Finance Consumer Redress Scheme, Financial Conduct Authority
- Legal challenges to the motor finance compensation scheme: update, Financial Conduct Authority (2026-05-08)
- Financial Ombudsman Service, Financial Ombudsman Service
This is guidance, not regulated financial advice. Check figures against the linked official source before you act. Written with AI assistance and checked against primary sources. How Kitty works. For free, impartial help, try MoneyHelper or Citizens Advice.