Car finance claims update: Legal challenges to be heard in February 2027

Last updated: 16 October 2026

On 13 October 2026, the Financial Conduct Authority (FCA) confirmed that the Upper Tribunal will hear the four challenges to its motor finance redress scheme between 16 and 26 February 2027, with a judgment expected in the following months. The Tribunal’s directions of 12 October 2026 list the hearing for nine days, with a further four days set aside for judicial pre-reading.

In July, the regulator said that the hearing would take place either on those dates or between 14 and 18 December 2026, depending on whether the Upper Tribunal allowed further expert evidence or disclosure. At a case management hearing on 5 and 6 October 2026, the Upper Tribunal allowed both, ordering the FCA to disclose further data and analysis and giving every party permission to rely on expert evidence.

In the meantime, the redress scheme remains partially suspended, as we explain below.

Who is challenging the redress scheme?

The FCA published the details of its motor finance redress scheme on 30 March 2026, setting out how millions of consumers may receive car finance compensation where they were treated unfairly because they were not told about certain commission arrangements or contractual ties in their car finance agreement. The regulator estimated that 12.1 million agreements entered into between 6 April 2007 and 1 November 2024 would be eligible, with an average redress payment of £829 per eligible agreement, and that £7.5 billion in total would be returned to consumers.

On 1 May 2026, the FCA confirmed that the redress scheme had been challenged by:

• Consumer Voice, an advocacy group, represented by Courmacs Legal;
• Volkswagen Financial Services;
• Mercedes-Benz Financial Services; and
• CA Auto Finance UK.

The latter three challengers are lenders. Mercedes-Benz Financial Services has publicly disclosed a redress provision of £424 million and, according to reports of its 2025 accounts, Volkswagen Financial Services has set aside £725 million. In a further statement on 8 May 2026, the regulator said it would defend the scheme 'robustly', calling it the 'quickest, fairest, and most cost-effective way' to deliver fair redress to consumers while ensuring a healthy and functioning motor finance market.

What do the legal challenges mean for consumers?

The timing, structure and operation of the scheme, and whether it proceeds in its current form, remain uncertain. The FCA has stated that the legal challenges will delay compensation payments and continues to encourage consumers to complain to their lender if they have not already done so.

In practical terms:

• the scheme has not disappeared;
• you should not assume you have no claim;
• your existing complaint remains relevant if you have already made one;
• the timetable for receiving compensation is now uncertain; and
• you can still complain if you have not already done so.

These challenges do not necessarily mean that consumers will be entitled to more compensation, or that the scheme will be substantially changed or withdrawn. They mean that the final position will not be clear until the Upper Tribunal has ruled on the challenges, subject to any appeal.

Does the FCA redress scheme still exist?

Yes. The scheme set out in Policy Statement PS26/3 remains the regulator’s final position unless an Upper Tribunal ruling or subsequent FCA action changes it.

However, the challenges mean that the scheme is not operating to the timetable originally envisaged when the regulator published the rules. On 2 July 2026, the FCA confirmed that the Upper Tribunal had made an order suspending parts of the scheme, on terms agreed between the regulator and the four challengers. Until the legal process concludes, lenders do not need to calculate or pay compensation under the scheme, or write to consumers about compensation they are owed, but they must keep preparing for the scheme and progress complaints as far as possible, as the FCA reminded them on 13 October 2026.

When will car finance compensation be paid?

The regulator said on 2 July that, if the scheme is upheld and the judgment is not appealed, it expects payments under the scheme to begin in 2027. With the challenges now listed to be heard in mid-to-late February, it seems unlikely to us that payments under the scheme, if it is upheld and the decision not appealed, will begin before the second half of 2027.

If the scheme is overturned in whole or in part, the regulator will need to decide what to do next. It has warned that consulting on a revised scheme could lead to further legal challenges and delay compensation until 2028 or beyond. The FCA may instead tell lenders to resolve complaints under the usual complaints process, in which case lenders would need to respond within eight weeks, and you could escalate your complaint to the Financial Ombudsman Service (FOS) if you were unhappy with the outcome.

The regulator has also repeated its warning to lenders that, if the scheme or parts of it are quashed, ‘there may be no motor finance compensation scheme and no complaint handling pause’, and said that it expects them to plan for this scenario.

Will my lender tell me if I am not owed compensation?

Yes, unless one of two exceptions applies. The parts of the scheme that have not been suspended require lenders to tell you if you have complained and are not owed compensation under the scheme by:

• 18 November 2026, if your agreement began on or after 1 April 2014 and you complained by 30 June 2026; and
• 18 January 2027, if your agreement began before 1 April 2014 and you complained by 31 August 2026.

If you complain after these dates and you are not owed compensation, your lender should tell you within five months of receiving your complaint. The FCA has said it will not treat a lender as non-compliant if it writes to you within seven weeks of the relevant deadline, so a letter may arrive up to seven weeks after these dates.

These deadlines do not apply if:

• your lender considers your complaint to be out of time; or
• your complaint concerns a contractual tie and your lender says you are not owed compensation because there were visible links between the lender, the manufacturer and the franchised dealer, such as a shared or similar name.

Both issues form part of the legal challenges that the Upper Tribunal will hear in February 2027.

Not hearing from your lender by the dates above does not mean that you are owed compensation, and the regulator has said that some consumers may not be told they are not owed compensation until the legal process concludes. If your complaint covers issues that are both inside and outside the scheme and your lender tells you that you are not owed compensation under the scheme, your lender should also tell you the outcome of the rest of your complaint.

If your lender tells you that you are not owed compensation and you think it has made a mistake, you can:

• ask it to review its decision;
• refer your complaint to the FOS if you remain dissatisfied; and
• consider whether to pursue a claim through the courts.

Our guide on what to do if your lender says you are not owed compensation explains these steps in more detail.

How did we get here?

At the centre of the issue are motor finance commission arrangements between lenders and brokers, who were often car dealers. In many cases, consumers were not clearly told:

• that commission was being paid;
• how it was calculated;
• how it may have influenced their interest rate; or
• whether the broker had contractual ties or obligations to a specific lender.

The best-known issue is discretionary commission arrangements (DCAs). DCAs allowed brokers to influence the interest rate the consumer paid, with the broker receiving a higher commission when the customer paid a higher rate. Following a consultation period, the FCA banned DCAs in January 2021. Historical agreements entered into before the ban were the initial focus of the regulator’s investigation into misconduct in the car finance market. The Court of Appeal’s 25 October 2024 judgment in the Johnson, Wrench and Hopcraft test cases subsequently brought other commission models under scrutiny.

The Supreme Court’s ruling in Johnson, Wrench and Hopcraft, handed down on 1 August 2025, confirmed that, in some circumstances, non-disclosure of commission and related facts could contribute to an unfair relationship between borrower and lender under the Consumer Credit Act 1974.

After consulting on its proposals in Consultation Paper CP25/27 between 7 October and 12 December 2025, the FCA confirmed the final redress scheme in PS26/3. The scheme was designed to give consumers a free and consistent route to compensation, rather than leaving millions of individual car finance complaints to be dealt with by lenders, the FOS and the courts.

Who may be eligible for car finance compensation?

Broadly, you may be owed compensation if you entered into an eligible car finance agreement between 6 April 2007 and 1 November 2024 and were treated unfairly because certain commission arrangements or contractual ties were not adequately disclosed. The scheme covers:

• DCAs;
• high commission arrangements, where commission was 39% or more of the total cost of credit and 10% or more of the loan amount; and
• contractual ties, where the broker had an exclusive or near-exclusive relationship with one lender, subject to exceptions under the scheme rules.

Not every motor finance agreement entered into during the relevant period will be eligible for compensation. The FCA’s estimate that 12.1 million agreements are eligible for redress equates to around 37% of all agreements entered into between 6 April 2007 and 1 November 2024.

The regulator’s redress scheme excludes certain agreements, including:

• very high-value loans, meaning loans higher than 99.5% of other loans in the relevant year;
• agreements already determined by a court;
• complaints already dealt with by the FOS; and
• cases where consumers have already accepted redress.

Consumers with very high-value loans may still be able to complain to their lender and, where appropriate, escalate the matter to the FOS. These agreements sit outside the scheme as the FCA does not consider them suitable for a mass-market process.

Eligibility depends on the facts of the motor finance agreement, not simply whether you financed a car during the relevant period.

What should consumers do now?

If you have already complained to your lender, you do not need to make the same complaint again. Existing complaints remain relevant. The FCA has told lenders to keep identifying complaints and agreements, gathering data, and preparing for the scheme, while also being ready to resume normal complaint handling if the Upper Tribunal quashes some or all of it.

The FCA’s pause on motor finance complaint handling ended on 31 May 2026. Complaints that fall entirely outside the scheme, such as those about very high-value loans, should now be dealt with in the usual way.

If you have not complained and are concerned your car finance agreement may have included hidden commissions, the regulator's advice is to complain directly to your lender. You can do this yourself at no cost, without using a law firm or claims management company.

If you intend to complain yourself, our guide to finding your old car finance agreements explains how to identify previous lenders and gather useful information before you begin.

What happens if the agreement involved a deceased person?

PS26/3 states that, if a consumer who would have been eligible for redress has died, lenders must take reasonable steps to identify and communicate with the estate’s representatives or beneficiaries.

If you are acting in relation to a deceased person’s agreement, you will need to provide your own details and explain your relationship to the deceased. Lenders are also likely to ask you to provide documentation showing your authority to act, such as a grant of probate, letters of administration, or other estate documents.

These cases may take longer than a personal complaint because the lender will need to confirm both the historical car finance details and your identity and authority to act.

What if you are or were bankrupt, in an IVA, or in other insolvency proceedings?

If you are bankrupt, have previously been bankrupt, are in an individual voluntary arrangement (IVA), or are subject to other insolvency proceedings, you should not assume that your lender will pay any redress directly to you.

PS26/3 refers consumers in this position to the Official Receiver’s guidance on motor vehicle finance redress.

If you are or were bankrupt

The Official Receiver’s guidance states that:

• if you entered into a motor finance agreement before you were made bankrupt or discharged from bankruptcy, any claim for redress will belong to the Official Receiver;
• the Official Receiver will make the claim, and you are not entitled to do so; and
• you must tell your lender about your bankruptcy if you have already made a claim.

If you took out your finance agreement after your bankruptcy ended, or if your bankruptcy was annulled, the guidance says you have the right to make the claim yourself and keep any compensation awarded.

If you have an IVA or are subject to other insolvency proceedings

If you are in an IVA, the Official Receiver says you will need to contact your insolvency practitioner to find out what will happen regarding your claim, as this will be subject to the specific terms of your arrangement.

PS26/3 does not provide detailed guidance on Debt Relief Orders (DROs), referring instead to ‘other formal insolvency proceedings.’ The Official Receiver’s guidance states that, if you are under a DRO and a redress award would take your total assets over £2,000 during the moratorium period, you should contact the Official Receiver.

Do I need to use a law firm or claims management company?

No. The regulator’s redress scheme is intended to allow consumers to receive any compensation they are due at no cost. The FCA has repeatedly emphasised that consumers do not need to use a law firm, claims management company, or other paid representative to complain and receive redress.

However, professional support may be useful where consumers:

• have or had several agreements with different lenders;
• cannot identify previous lenders;
• no longer have paperwork;
• are concerned about interpreting lender responses;
• believe that an agreement may give rise to issues outside of the scheme;
• are dealing with a deceased person’s estate; and
• would benefit from help reviewing compensation offers.

Before instructing anyone, check that a law firm is regulated by the Solicitors Regulation Authority (SRA) or that a claims management company is authorised by the FCA. The FCA, SRA, Information Commissioner’s Office and Advertising Standards Authority have also launched a joint taskforce to tackle poor practice in motor finance claims, including misleading advertising, multiple representatives and unfair fees.

Why legal advice may still matter

The FCA scheme is designed to process millions of motor finance complaints consistently. That is a strength, but it is also a limitation, because the scheme focuses only on specific commission arrangements and contractual ties. It is not designed to investigate every possible issue arising from a motor finance agreement, including concerns about:

• irresponsible or unaffordable lending;
• mis-sold GAP insurance or other add-on products;
• interest charged on add-ons rolled into the finance agreement;
• consequential loss; and
• missing or incomplete records influencing your redress calculation or decision.

You may also have concerns about whether your lender has correctly applied the scheme rules, how to interpret the wording of a compensation offer, or whether accepting an offer may affect your ability to pursue additional claims outside the scheme.

A solicitor can help identify the relevant agreements, request disclosure, review lender responses, and assess whether issues outside the FCA scheme require further investigation.

Instructing a solicitor does not mean that you will necessarily receive a higher redress award, or that you have a valid claim. However, it may help if you are unsure whether you have additional issues outside the scheme.

Register your motor finance claim with Harcus Parker

The status of car finance claims remains unsettled. The FCA has confirmed a final redress scheme, but the four legal challenges, which we now know the Upper Tribunal will hear in February 2027, along with the continuing partial suspension, mean that the timing and final operation of the scheme remain uncertain.

If you had a car finance agreement between 6 April 2007 and 1 November 2024, have not yet made a motor finance complaint, and would prefer to be represented professionally, you can register your claim with Harcus Parker here.