By Ahmed Abdelsalam
UK drivers who were mis-sold car finance agreements may receive compensation offers from lenders before a court case concludes next year, the Financial Conduct Authority (FCA) has said.
The regulator will welcome early settlement offers provided customers are not given a worse deal than under its proposed central redress scheme. That scheme faces a legal challenge scheduled for February, with compensation unlikely to be paid until late 2027.
Early Settlement Offers Begin
Barclays has confirmed it will start making early compensation offers, and other lenders are expected to follow. The FCA said only a minority of claimants would receive early offers, with most waiting for the court outcome.
Stephen Braviner Roman, the FCA’s general counsel and co-lead on the motor finance project, said fair settlement offers could get money to some people sooner. He emphasized that accepting an offer is voluntary and the regulator will monitor firms closely.
Background of Mis-selling
Millions of drivers who took out car loans between April 2007 and November 2024 are entitled to compensation after loans were mis-sold. The issue centers on discretionary commission arrangements (DCAs) where dealers received commission from lenders based on the interest rate charged, often without the customer’s knowledge.
Compensation Details
Average payouts of about £829 are expected across roughly 12 million loans, representing 37% of agreements during the period. Total industry costs could reach £9.1 billion, including administrative expenses. Individual payouts will vary based on the degree of harm.
Barclays said early offers would use the FCA’s redress methodology and would be explained clearly. Claimants will be contacted in the coming weeks, though not all whose complaints were acknowledged by 1 October 2026 will receive an early offer.
Legal Challenges Ahead
The FCA’s main scheme remains partially suspended pending the Upper Tribunal hearing from 16 February to 3 March. Three lenders – Volkswagen Financial Services, Mercedes Benz Financial Services, and Credit Agricole Auto Finance – are among those challenging the scheme.
Consumer group Consumer Voice said the proposed scheme leaves “too many people short-changed.” Solicitor Kevin Durkin, who represented a Supreme Court claimant, expressed reservations that fair compensation would be offered, calling early offers “crumbs from the table.”
Guidance for Claimants
The FCA has published a factsheet to help drivers decide whether to accept early settlements, including a list of lenders making offers to prevent scams. The regulator warned that accepting an offer means claimants cannot seek more later if the legal challenge yields higher payouts, and it removes them from the central scheme and the financial ombudsman’s process.
Drivers concerned about their car finance deal who have not yet complained can still do so directly with their lender, with free guidance available on the FCA website.
