Reviewed and last updated on July 28, 2026 by Awais Ahmed, Founder & Editor-in-Chief, Urban Scope News.
Millions of UK drivers who bought a car on finance are facing another wait for compensation, after the Financial Conduct Authority confirmed its motor finance redress scheme has been partly suspended while legal challenges are heard. If you have ever wondered whether your car finance agreement counts as a personal loan, or whether you might be owed money, here is what is actually happening and what it means for you.
What’s happening now (last updated 29 July 2026)
The FCA confirmed on 30 March 2026 that it would introduce an industry-wide redress scheme to compensate motor finance customers who were treated unfairly between 6 April 2007 and 1 November 2024. The regulator’s headline £7.5 billion figure is an estimate based on an assumed 75 percent participation rate, not a fixed compensation pot, and it estimates the average payment at around £830 per eligible agreement, a figure that already accounts for interest rather than sitting on top of it.
That timeline has since slipped. On 1 May 2026, the scheme was legally challenged, with four parties involved: consumer-representation group Consumer Voice (represented by Courmacs Legal), and lenders Volkswagen Financial Services, Mercedes-Benz Financial Services and Crédit Agricole Auto Finance. On 2 July 2026, the FCA confirmed that the Upper Tribunal had suspended parts of the scheme while it considers those challenges. A hearing is now expected in December 2026 or February 2027, with a decision likely to follow some months after that.
The practical effect is that lenders are no longer required to calculate or pay compensation until the legal process concludes. Payouts were originally expected to begin during 2026, and are now unlikely to start before 2027 if the scheme is upheld, with further delay possible if the ruling is appealed.
This is a fast-moving story. Firms have been told to keep preparing in the background so that payments can start quickly if the scheme is upheld, but nothing is guaranteed until the Tribunal rules.
Car finance vs personal loan: how they actually differ
The redress scheme has driven a lot of searches asking whether car finance and personal loans are the same thing. They are not, and the difference matters for anything to do with this scheme.
What counts as car finance
Car finance usually means either Hire Purchase (HP) or Personal Contract Purchase (PCP), a type of HP agreement. In most cases, the finance is arranged through a broker, usually the car dealership, and the lender technically owns the vehicle until you have made all the payments (HP) or until you choose to pay an optional final balloon payment to own it outright (PCP). It is this broker relationship, specifically undisclosed commission paid to whoever arranged your loan, that sits at the centre of the redress scheme. Personal Contract Hire, a leasing arrangement rather than a route to ownership, is specifically excluded from the scheme.
What counts as a personal loan
A personal loan is a separate, unsecured loan taken out directly from a bank or lender, which you could then use to buy a car outright from any seller. Because there is no dealership acting as a broker and no commission arrangement between a car seller and the lender, personal loans used to buy a car generally fall outside the scope of the redress scheme.
The key distinction
If you arranged your finance through the dealership at the point of sale, it is very likely to be HP or PCP, not a personal loan, and it may fall within the scheme’s scope. If you took out a loan from your bank or another lender separately, before choosing your car, that is a personal loan and is unlikely to be affected by this scheme.
Are you affected? Eligibility window
The redress scheme, if it goes ahead as currently designed, covers HP and PCP agreements, including Personal Contract Purchase, taken out between 6 April 2007 and 1 November 2024. This exact window is fixed and is not affected by the recent delays, only the payment timeline has changed. The FCA estimates around 37 percent of agreements from this period, roughly 12.1 million, are eligible.
Eligibility depends on whether you were not properly told about one of three specific arrangements between your lender and broker (usually the dealer):
- A discretionary commission arrangement, where the broker could adjust your interest rate to earn a higher commission.
- A high commission arrangement, where commission met defined thresholds (broadly, at least 39 percent of the total cost of credit and 10 percent of the loan).
- A contractual tie, where your broker only used one lender or gave that lender first refusal, unless there were visible links between the lender, manufacturer and dealer, for example a shared name.
Not every agreement qualifies. The scheme will not apply if you leased a car under Personal Contract Hire, if a court or the Financial Ombudsman has already considered your complaint, if you have already accepted compensation, if the commission was below a small threshold (£120 before April 2014, £150 after), if no interest was charged, or if your loan exceeded certain high-value thresholds.
Assessment is not fully automatic. If you have already complained and had it acknowledged, your case is being handled under the scheme. If you have not complained, lenders are expected to contact anyone potentially owed money within six months of the scheme starting, though this timing depends on the legal challenge being resolved. You do not need to wait to be contacted. Complaining now, covered below, gets your case assessed and any compensation paid sooner.
What to do right now
The FCA has been clear and consistent on one point throughout this process: you do not need to pay a claims management company or law firm to make a complaint. These firms can charge up to 36 percent, including VAT, of any compensation you are owed.
If you think you may be affected, the FCA’s advice is to complain directly to your lender, free of charge. Because parts of the scheme are currently suspended, the timing of a decision on whether you are owed compensation is uncertain. However, if your lender concludes you are not owed anything, it must generally tell you within a set timeframe, either by a specific date in November 2026 or January 2027 depending on when you complained and when your agreement began, or within five months for later complaints. After receiving a formal redress determination, you can ask the Financial Ombudsman Service to review whether the scheme rules were followed, free of charge.
What happens next
The Upper Tribunal challenge is the key thing to watch. A hearing is expected in December 2026 or February 2027, and the outcome will determine whether the scheme goes ahead broadly as planned, is altered, or is scaled back. Lenders have been told to prepare on the assumption that normal complaint-handling timeframes will apply from around mid-November 2026, but this could change depending on the ruling.
Until then, complaints can still be submitted, but lenders are not currently required to calculate or pay redress while the suspension is in place.
Frequently asked questions
Is car finance the same as a personal loan?
No. Car finance, usually Hire Purchase or Personal Contract Purchase, is arranged through the dealership and involves the lender owning the car until the agreement ends or is settled. A personal loan is a separate, unsecured loan you arrange directly with a bank, which you can then use to buy a car from anyone.
Do I need a claims management company to get compensation?
No. The FCA has repeatedly advised consumers to complain directly to their lender rather than use a claims management company or solicitor, since these firms can take up to 36 percent, including VAT, of any payout.
When will car finance redress payments start?
Payments were originally expected to begin during 2026 but have been delayed due to legal challenges. The FCA now expects a Tribunal hearing in December 2026 or February 2027, with payouts unlikely before 2027 if the scheme is upheld.
Am I eligible for car finance compensation?
You may be eligible if you took out Hire Purchase or PCP finance, arranged through a broker, between 6 April 2007 and 1 November 2024, and were not properly told about a discretionary commission arrangement, a qualifying high commission, or certain contractual ties between the broker and lender. Not every such agreement qualifies, exclusions apply, and personal loans arranged independently are not covered.
