Car finance claimants may get early compensation offers

The proposed central compensation scheme remains partially suspended pending legal challenges, with a hearing in February and resulting payments unlikely until late next year. The FCA said it would still only expect a minority of claimants to be made early offers, with most having to wait for the outcome of next year's court case.

The loans mostly related to discretionary commission arrangements, under which car dealers received commission from lenders based on the interest rate charged to the customer, often without customers being told. Millions of drivers who took out a car loan between April 2007 and November 2024 will be entitled to compensation. Average payouts of about £829 are expected across about 12 million car loans, roughly 37% of the total during the period, and the compensation is expected to cost the industry up to £9.1bn including administrative costs.

Stephen Braviner Roman, the FCA's general counsel and co-lead on the motor finance project, said: "Fair settlement offers could result in some people getting money sooner. It's clear they want the choice."

He added: "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."

Barclays, which has decided to start making payments early, said claimants had already faced "a considerable wait". A Barclays Partner Finance spokesperson said: "By making these early settlement offers, we are giving some customers the option of receiving redress sooner, rather than waiting for the legal challenges and any subsequent FCA action to conclude."

The spokesperson said each offer would be calculated using the FCA's redress scheme methodology, with the calculation explained and the meaning of a full and final settlement set out so customers could decide whether to accept. The lender said claimants would start to be contacted directly "in the coming weeks", but stressed that not all customers whose complaints were acknowledged on or before 1 October 2026 would receive an early settlement offer.

The FCA has published a factsheet to help drivers work out whether to accept an early settlement, including a list of lenders making early offers to ensure claimants with other lenders are not scammed. It said lenders must be clear that a customer who accepts can keep the payment even if the final settlement under the central scheme proves smaller, cannot claim more later if the legal outcome would have paid them more, and is taken out of the scheme, ending any further input from the financial ombudsman.

The Finance and Leasing Association, which represents lenders, said: "We want to see consumers receive the fairest outcome in as timely a way as possible and recognise that, in some cases, that may point to early settlement, while in others it may be appropriate to await greater legal certainty."

Kevin Durkin, solicitor advocate and director at HD Law, who represented Marcus Johnson, who won his case in the Supreme Court, said he had "real reservations" that fair compensation would be offered. "These are only heightened by reports that just a small number of claimants will receive what could be lowball offers. I fear this is crumbs from the table, for some customers who are highly likely to be owed more, while the vast majority will receive no offer at all," he said.

Consumer group Consumer Voice said the proposed compensation scheme left "too many people short-changed". Three lenders, Volkswagen Financial Services, Mercedes Benz Financial Services and Credit Agricole Auto Finance, are also challenging the scheme. The UK's Upper Tribunal has agreed to hear the legal challenges, with a hearing scheduled from 16 February to 3 March. Drivers concerned about a car finance deal who have not yet complained can still complain directly to their lender.