Drivers may get compensation offers before car finance saga ends

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Drivers may be offered compensation from lenders ahead of the next legal battle in the car finance mis-selling saga.

Regulator the Financial Conduct Authority (FCA) said it would welcome lenders making settlement offers as long as customers were not given a worse deal than under its proposed central scheme.

That scheme is facing a legal challenge, to be heard in February, with resulting compensation unlikely to be paid until late next year.

But Barclays has confirmed it will make early compensation offers from now, with others expected to follow suit.

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.

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.

“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.”

Why drivers will receive payouts

The vast majority of new cars, and many second-hand ones, are bought with finance agreements. Customers pay an initial deposit to secure the vehicle, then a monthly fee with interest.

But millions of drivers who took out a car loan between April 2007 and November 2024 will be entitled to compensation after the loans were mis-sold.

They mostly related to when car dealers received commission from lenders, based on the interest rate charged to the customer. These were known as discretionary commission arrangements (DCAs) and customers were often not told about them.

Average compensation payouts of about £829 are expected to be made related to about 12 million car loans – about 37% of the total number during the period.

Car finance compensation payments delayed until next year

Compensation will cost the industry up to £9.1bn, including administrative costs. Individual payouts will vary, depending on the degree of harm each driver faced.

With huge compensation payouts inevitable, some lenders have already set aside millions of pounds to cover the cost.

Barclays has decided to start making compensation payments early, potentially to start clearing the cost off its balance sheet. It pointed out that claimants had already faced “a considerable wait”.

“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,” said a Barclays Partner Finance spokesperson.

“Each offer will be calculated using the FCA’s redress scheme methodology. We will clearly explain how it has been calculated and what accepting a full and final settlement means, so customers can decide whether accepting the offer is right for them.”

The lender said claimants would start to be contacted directly “in the coming weeks”.

But it stressed not all customers whose complaints were acknowledged on or before 1 October 2026 would receive an early settlement offer.

Guidelines on whether to accept an offer

The FCA has published a factsheet to help drivers, external work out whether they should accept early settlements from lenders.

It will include a list of lenders who are making early offers, to ensure claimants with other lenders are not scammed.

The regulator said lenders will need to be clear with people about what accepting any offer means. This includes:

Being able to keep any payment, even if the final settlement under the central scheme after the legal challenges proved to be smaller

Claimants would not be able to claim more later if the outcome of the legal challenge meant they would have been paid more

Accepting an offer takes you out of the scheme and stops any further input from the financial ombudsman

The main proposed FCA scheme remains partially suspended, pending legal challenges in February.

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 legal challenges to the scheme, with a hearing scheduled from 16 February to 3 March.

Anyone who is concerned about their car finance deal and has not yet complained can still complain directly to their lender. There is information on the FCA website on how to complain for free, external.

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