Car finance compensation scheme: latest update

Car finance compensation under the FCA’s scheme will not be paid before the legal challenges to it are decided, and those challenges now have a date. On 13 October 2026 the Financial Conduct Authority (FCA) confirmed that the Upper Tribunal will hear them from 16 to 26 February 2027 (FCA). Until the legal process ends, lenders do not need to calculate or pay compensation under the scheme. If the scheme is upheld and not appealed, the FCA expects payments to begin in 2027.

We keep this page up to date as the case moves on. Last updated: 16 October 2026.

The latest: February 2027 hearing confirmed

A case management hearing on 5 and 6 October 2026 decided between two possible windows. The December 2026 option was dropped, and the full hearing will run from 16 to 26 February 2027. The FCA says a judgment is expected in the months after the hearing, without giving a date.

In the meantime, the FCA has told lenders to:

• keep preparing for the scheme and take complaints as far through the process as they can;
• follow the scheme rules that are still in force, including telling some customers they are not owed compensation;
• plan for the possibility that the scheme, or parts of it, are quashed. In that case, the FCA says, there may be no scheme and no pause on complaint handling, and complaints would be dealt with under the normal rules and time limits.

Car Dealer Magazine reports that the FCA now puts the total cost of redress at around £9.1 billion across roughly 12.1 million agreements (Car Dealer Magazine).

What has been suspended

The FCA published its final scheme rules on 30 March 2026, in policy statement PS26/3. The scheme covers car, van and motorbike finance taken out between 6 April 2007 and 1 November 2024. It pays out where a customer was not told about a discretionary commission arrangement, a high commission or a contractual tie between the lender and the broker.

Four parties have challenged the rules at the Upper Tribunal: Consumer Voice (represented by Courmacs Legal), Volkswagen Financial Services, Mercedes-Benz Financial Services and Crédit Agricole Auto Finance. The Tribunal suspended parts of the scheme on terms the FCA agreed with all four.

Under the partial suspension of the scheme, lenders do not have to calculate redress, pay it, or send letters about compensation owed on the scheme’s original timetable. Most other rules still apply. Lenders must keep identifying affected agreements and gathering commission data, so that payments can start quickly if the scheme survives.

What happens after the hearing

The Tribunal will hear the challenges from 16 to 26 February 2027, and a judgment is expected in the months after that. From there, the FCA sets out two broad routes:

• The scheme is upheld and not appealed. Payments are expected to begin in 2027.
• The scheme is struck down in whole or in part. The FCA may require lenders to deal with complaints individually under normal complaint rules, or consult on a revised scheme. It has said that route could push compensation into 2028 or beyond.

The FCA estimates that around 12.1 million agreements are eligible, with an average payout of around £830 per agreement and about £7.5 billion paid out in total. Your own figure depends on your agreement.

What it means if you have already complained

You do not need to do anything new. If your lender decides you are not owed compensation, it still has to tell you, because that part of the rules is not suspended. The FCA says those answers should arrive by 18 November 2026 for agreements from 1 April 2014 that were complained about by 30 June 2026, and by 18 January 2027 for older agreements complained about by 31 August 2026. Later complaints should get an answer within five months.

If you hear nothing by then, your complaint may still be in scope for compensation, but nothing is certain until the legal challenges are decided.

You can complain to your lender directly, for free. The FCA’s consumer page explains how.

Why the delay can change your tax rebate

Scheme compensation is made up of the commission or estimated loss plus interest, at the Bank of England base rate plus 1% a year (with a minimum of 3%). That interest is taxed as savings income, and lenders usually deduct basic-rate income tax (22% from 6 April 2027) from it before they pay you.

Whether you can get that tax back depends on your income in the tax year you are paid, not the year you took out the car finance. With the hearing in late February and a judgment to follow, most scheme payments are now likely to fall after 5 April 2027, in the 2027/28 tax year. If your income or tax band changes between years, so can your refund.

Finance Act 2026 raises tax on savings income by 2 percentage points across all bands from 6 April 2027, and the rate lenders deduct from interest moves to the new 22% savings basic rate. The new rates are 22% for basic-rate taxpayers, 42% for higher-rate and 47% for additional-rate. The Personal Savings Allowance and the starting rate for savings are not changing (GOV.UK). For people whose compensation interest falls within their allowances, the result is the same: the tax the lender takes off should be repaid. Our guide to the Personal Savings Allowance and car finance compensation explains how the allowances work, and is car finance compensation taxable? covers the rules in full.

As a general guide:

• Non-taxpayers can usually reclaim all the tax deducted.
• Basic-rate taxpayers can usually reclaim up to £220 on payments from 6 April 2027 (£200 before), because of the £1,000 Personal Savings Allowance.
• Higher-rate taxpayers have a £500 allowance, so can reclaim some or all of a smaller deduction.

Individual circumstances vary. The four-year time limit for a claim also runs from the end of the tax year you are paid, so a later payout gives you a later deadline.

The tax is usually reclaimed on form R40, or through a Self Assessment return if you file one. When you use our service, we check whether you’re likely to be owed anything, work out the right tax year, prepare and submit the R40 as your agent, and pay you the balance after our fees. Our how it works page explains the process.

What to do now

Keep any letters from your lender and note the date of your complaint. When compensation is paid, check the statement for the interest figure and the tax deducted. You can then use our calculator to see roughly what you could get back.