Car finance claims: UK drivers could get up to £700 in FCA mis-sold motor finance compensation refunds in 2026
Regulators are preparing to set out key details of a potential redress scheme 🚗
Millions of drivers across the UK, including thousands in Yorkshire, could receive motor finance compensation this year, under plans expected to be finalised later this month.
The potential redress scheme, being drawn up by the Financial Conduct Authority (FCA), could see payouts linked to millions of historic car finance agreements where customers were not properly told about commission arrangements between lenders and dealerships.
While a final decision has not yet been made, the watchdog says that if the scheme goes ahead, it will publish its final rules in late March. That would pave the way for compensation payments to start landing this year.
Why drivers could be owed money
At the heart of the issue is how some car loans were sold. The FCA has previously said that certain motor finance firms and lenders broke the law and its rules by failing to properly disclose commission paid to car dealers.
In some cases, dealers were incentivised to increase the interest rate offered to customers because their commission rose with it.
This meant many motorists did not have a fair opportunity to negotiate or shop around for a better deal, and may have paid more than they should have over the course of their agreement.
The regulator estimates that around 14 million motor finance deals could be in scope. Average compensation has previously been put at around £700 per agreement, though individual payouts would depend on the specifics of each case.
In total, the scheme could cost lenders an estimated £11 billion once redress and administration costs are taken into account.
When could compensation be paid?
If the FCA gives the green light later this month, lenders would be given a three-month implementation period to put systems in place and begin paying redress.
For older and more complex agreements, firms could be granted up to five months due to the scale of the exercise.
The FCA has said that, even with this preparation time, streamlining the process should mean millions of people receive compensation during 2026.
Consumers would be told within three months of the end of the implementation period whether they are owed money and how much. They would be able to accept the offer immediately rather than waiting for a final determination.
The final rules are due to be published outside market hours, with advance notice given of the exact date.
Will you need to make a claim?
Under the proposed approach, the FCA aims to create a largely automatic scheme. Lenders would review past agreements and contact customers who are due redress, rather than waiting for individuals to submit formal claims.
To speed things up, the regulator is considering changes so that people who have already complained before the scheme begins will not be asked if they want to opt out.
Lenders may also be allowed to contact customers using standard methods, rather than recorded delivery, to avoid delays.
But the FCA is urging anyone who believes they were mis-sold motor finance involving hidden commission to complain now to their lender.
It says doing so could mean receiving compensation sooner if the scheme proceeds. There is no need to use a claims management company or law firm, and those who do could lose more than 30% of any payout in fees.
How would the money be paid?
If the scheme is approved, compensation would typically be paid directly by lenders.
In most cases, this is expected to mean money being transferred straight into the customer’s bank account. Where a loan is still active, any redress could instead be used to reduce the outstanding balance before any remaining sum is paid out.
Firms will need to trace customers whose agreements ended years ago, using contact details on file and other reasonable steps. This is one reason the FCA has acknowledged the need for an implementation window, particularly for older loans.
Richard Pinch, senior director of risk at advisory firm Broadstone, described the proposed timetable as a “sensible acknowledgement” of the scale and complexity involved.
Lenders must review historic agreements, build operational processes and calculate payments accurately to maintain consumer confidence, he said.
Backlash from lenders
The plans have sparked significant pushback from parts of the banking sector, with major lenders like Santander UK and Lloyds Banking Group already setting aside large sums to cover potential liabilities.
Industry figures have warned that a multi-billion-pound compensation bill could affect the wider car finance market and motor sector, potentially leading to job losses.
The FCA says it is considering changes to ensure a “better experience for consumers” while keeping costs proportionate and supporting a well-functioning market.
For now, millions of drivers are waiting to see whether the scheme gets final approval. If it does, 2026 could be the year that long-running concerns over hidden car finance commission finally result in money being paid back.