Lenders are beginning to make early settlement offers to drivers affected by car finance mis-selling, even as a major legal challenge to the compensation scheme proceeds toward trial. According to BBC News, the Financial Conduct Authority (FCA) has signalled its support for these advance payments, provided they do not disadvantage customers compared with what the regulator's central redress scheme would deliver.
The FCA's Motor Finance Commission Consumer Redress Scheme, established on 30 March 2026, faces a legal challenge scheduled to be heard in the Upper Tribunal from 16 February to 3 March 2027, with judgment expected in the months following. Most compensation payments are unlikely to reach claimants until 2027 if the scheme survives this challenge. However, Barclays has begun sending early compensation offers to a limited group of former customers, with other major lenders expected to follow.
Stephen Braviner Roman, the FCA's general counsel and co-lead on the motor finance project, explained the regulator's position:
Fair settlement offers could result in some people getting money sooner. It's clear they want the choice. Anyone who wants to wait can, and there's no obligation to agree to the offer. We'll closely monitor firms making offers and expect them to be clear what accepting an offer means.
The FCA has cautioned that only a minority of affected drivers will receive early offers, with the majority required to await the court's decision. Barclays' early offers are reported to focus mainly on "Johnson cases," involving discretionary commission or commission reaching specified thresholds of the total credit cost and loan amount. The bank faces an estimated £430m motor-finance redress bill overall.
What is the car finance mis-selling scandal?
The vast majority of new cars, and many second-hand vehicles, are purchased using finance agreements in which buyers pay an initial deposit followed by monthly instalments with interest. Between April 2007 and November 2024, millions of drivers took out car loans that were mis-sold through the use of discretionary commission arrangements (DCAs).
Under these arrangements, car dealers received commission from lenders based on the interest rate charged to the customer. In most cases, customers were not informed that such commissions existed or how they affected the terms of their loans. The FCA's final rules cover agreements made from 6 April 2007 to 1 November 2024, and estimate redress on about 12.1 million agreements.
How much compensation will drivers receive?
Average compensation payouts of approximately £829 are expected across the affected loans. The total redress scheme is valued at around £9.1 billion, covering roughly 37% of all car loans issued during the specified period. The scale of the scheme reflects the widespread nature of the mis-selling across the motor finance industry.
Why is the scheme facing legal challenge?
Four parties—CA Auto Finance UK, Consumer Voice, Mercedes-Benz Financial Services UK and Volkswagen Financial Services—have challenged the lawfulness of the FCA's redress scheme. Parts of the scheme are currently suspended while the legal process continues. If the scheme is upheld and the decision is not appealed, the FCA expects payments to begin in 2027.
The legal challenge reflects disagreements over how the scheme calculates compensation and which lenders bear responsibility for redress. Some parties argue the scheme's methodology disadvantages certain lenders or does not adequately protect consumer interests.
What happens next?
The Upper Tribunal hearing is scheduled for 16 February to 3 March 2027, with a judgment expected in the following months. During this period, lenders including Barclays will continue making early settlement offers to eligible customers. The FCA will monitor these offers to ensure they meet its standards and do not leave customers worse off than they would be under the central scheme.
Once the legal challenge is resolved and assuming the scheme is upheld, the FCA expects the full compensation programme to commence in 2027. Drivers who have not accepted early offers will receive their compensation through the central redress scheme following the court's decision.
Key Facts:
- Approximately 12.1 million car finance agreements issued between April 2007 and November 2024 are eligible for compensation
- Average compensation payout is expected to be around £829 per affected loan
- The Upper Tribunal hearing on the scheme's legality is scheduled for February to March 2027
- Barclays and other lenders are making early settlement offers to select customers ahead of the court decision
- Full compensation payments are not expected to begin until 2027 if the scheme survives the legal challenge
