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Join Which? MoneyCar finance mis-selling compensation: what you need to know
Barclays Partner Finance - the trading name of Clydesdale Financial Services Limited - has announced it will offer an early settlement scheme
With a background in financial journalism across national titles, Ruby loves helping people take control of their money and specialises in pensions, tax, banking and benefits.
If you took out car finance in recent years, you could be in line for compensation under plans set out by the Financial Conduct Authority (FCA).
The scheme follows a Supreme Court ruling and the FCA’s conclusion that some lenders broke consumer law, while others failed to properly disclose commission payments to car dealers.
If you were overcharged, often because of discretionary commission arrangements (DCAs) and other commission types, you could be in line for compensation. The scheme was first announced in March, with the average payout now expected to be just over £800, higher than earlier estimates.
In May, fresh legal challenges to the scheme were launched by some lenders and a consumer group. This caused delays to the compensation scheme, and the FCA has now confirmed that these challenges will be heard in February 2027.
However, Barclays Partner Finance, which is the trading name of Clydesdale Financial Services Limited, has today become the first major lender to roll out an early settlement scheme to offer some individuals an earlier compensation payout. For more on this development, jump to the car finance early settlement section.
Here’s what you need to know about the car finance scandal, including how the scheme works, whether you’re eligible and what to do next.
What is the car finance scandal about?
Around two million new car and second-hand car deals each year are bought using car finance agreements. These deals usually involve paying an initial deposit, followed by monthly instalments with interest.
Before 2021, many lenders used discretionary commission arrangements (DCAs), which allowed brokers and dealers to hike interest rates to earn higher commission – around 40% of car finance deals were believed to have DCAs.
The FCA found that this created a clear incentive for you to be charged more than necessary, increasing the overall cost of your loan. It banned DCAs in January 2021, although complaints about overcharging had already started to emerge before then.
In 2024, the FCA launched an investigation into whether customers were overcharged between April 2007 and January 2021. This followed a Financial Ombudsman ruling against Barclays over unfair commission payments.
At the same time, a separate court case involving Close Brothers and FirstRand Bank examined whether undisclosed commissions rendered finance deals unlawful. Although the Court of Appeal initially ruled against the lenders, the Supreme Court later overturned that decision.
This means hidden commissions aren't automatically unlawful and the compensation scheme will focus mainly on DCAs rather than all car finance deals.
- Find out more: car finance options explained: PCP, PCH, HP and more.
How will the compensation scheme work?
The FCA made several changes to its plans after feedback from consumers, firms and industry bodies since it launched the consultation in October 2025.
Fewer agreements qualified for compensation, with around 12.1m expected to be eligible, down from 14.2m. At the same time, the average compensation increased for older agreements, and a minimum interest rate of 3% a year was added to payouts.
When the scheme was announced, the FCA told consumers that if they'd already complained to their lender, they didn’t need to do anything else for now.
Under the original plan, lenders would review your case automatically and would tell you within three months whether you’re owed compensation.
If you haven’t complained, lenders were set to contact eligible customers directly, usually via email or other digital channels, provided proper fraud checks were in place.
Despite the ongoing legal challenges, the FCA has reiterated that you should still complain to your lender if you think you were affected.
If you think you've been affected by car finance mis-selling, see our guide on how to complain about a commission arrangement on a car finance loan. You can also use our free template letter to submit your complaint.
- Find out more: how to complain about a car dealer.
Who is eligible for car finance compensation?
Under the current compensation plan, car finance loans taken out between 6 April 2007 and 1 November 2024 are covered by the FCA compensation scheme if you were not clearly told that:
- Your dealer or broker was allowed to set a higher interest rate just to earn a bigger commission.
- The commission was very high, meaning it was at least 10% of your loan or 39% of the total cost of credit.
- Your dealer only worked with one specific lender and didn't look for other deals for you.
However, you can't claim for this final point if there was a clear, visible link between the lender and the car manufacturer, such as having a similar name.
You may not be eligible for compensation if your case is considered fair based on these exceptions:
- The commission was £120 or less for agreements beginning before 1 April 2014 and £150 or less from that date.
- The DCA wasn’t used to earn discretionary commission.
- You weren't charged interest.
- If the lender can prove, in certain limited circumstances, that it was fair not to disclose the arrangement or that the consumer did not suffer any loss. For example, if no better deal was available.
Claims for high-value loans – amounts higher than 99.5% of other loans that year – aren't covered by the scheme. However, these consumers can still complain to firms and the Financial Ombudsman Service (FOS) .
How much compensation will you get?
The FCA says the average payout is likely to be around £829. If you had more than one finance agreement during this period, you could receive multiple payments.
For most people, the compensation will have two parts:
- A refund of the commission paid.
- An amount for ‘estimated loss’ – this is 17% of the interest paid for cases from April 2014, or 21% for loans made before this.
Interest will also be paid on compensation, based on the annual average Bank of England base rate per year, plus 1%, at a minimum of 3% in any year.
The FCA has said that compensation won’t put you in a better position than if you’d been treated fairly in the first place. Because of this, some payments will be capped, with around one in three cases affected.
Overall, the FCA estimates the scheme could cost around £7.5bn if 75% of eligible customers make a claim.
- Find out more: most reliable car brands in 2025.
Beware of claims management firms
If you use a claims management company (CMC), you’ll need to give part of your payout to that firm if your claim is successful. This could be as much as 30% of any award.
The FCA has joined with the Solicitors Regulation Authority, Information Commissioner’s Office and Advertising Standards Authority to launch a taskforce to tackle poor handling of motor finance claims by CMCs and law firms.
The regulator noted that it had already removed or amended 800 misleading adverts, helped more than 28,000 consumers exit contracts free of charge, and reduced the high fees charged by three CMCs – protecting more than 500,000 consumers.
If you're using one, the FCA said that the companies must inform you of the regulator's redress scheme. They must also alert you to all charges and must be clear on exit fees.
Delays to the compensation scheme
The compensation scheme is currently partially suspended after the FCA received four new legal challenges by three lenders and a consumer group.
The three lenders involved include CA Auto Finance, Mercedes-Benz Financial Services and Volkswagen Financial Services.
A separate challenge was also brought by the consumer group Consumer Voice, which argues that payouts should be higher. Consumer Voice said the current scheme risks underpaying millions of people, potentially by billions of pounds, if redress is set too low.
However, the FCA said none of the legal claims it has received is expressly in the name of individual consumers. It also said it would defend the scheme ‘robustly’ in court.
In October, the FCA announced that both legal challenges will be heard between 16 and 26 February 2027. A judgement is then expected in the months following.
Until the legal challenge is completed, lenders do not need to calculate or pay compensation – even if you have complained. However, lenders do need to comply with the scheme rules that remain in force. This includes sending letters to some consumers not owed compensation under the scheme.
If the FCA wins the legal case, the scheme will once again go ahead and it will issue an update on how it will proceed.
If you believe you were affected by the car finance scandal, you are still allowed to complain to your lender directly for free.
Do you have to take part in the compensation scheme?
You don’t have to take part in the FCA’s compensation scheme if you don’t want to. You also have the option of taking your case to court.
The regulator says those who take their case to court could receive a larger compensation payment, although the outcome would depend on the facts of each case and could involve legal costs.
The FCA noted that its compensation scheme will be faster and simpler than pursuing legal action.
- Find out more: compensation for consumers when things go wrong.
Early settlement scheme being introduced
With parts of the FCA's motor finance redress scheme suspended due to legal challenges, Barclays Partner Finance - which is the trading name of Clydesdale Financial Services Limited - has become the first major lender to offer early settlements.
The move aligns with new research from the FCA and Kantar showing strong support for early resolution, with 89% of car finance complainants wanting the option of an offer now, with 77% saying that an earlier payout would make a significant difference to their finances. Around 61% said they would accept an offer matching the regulator's scheme.
The FCA has confirmed that it supports lenders making early offers, provided payments are no less than what customers would receive under the official scheme. The regulator is also publishing an official factsheet that lenders must provide, alongside a public register so drivers can verify that incoming offers are genuine.
How it will work
Over the coming weeks, Barclays Partner Finance will write directly to selected customers, or their authorised representatives, whose commission complaints were acknowledged on or before 1 October 2026. It's important to note that not all complainants will receive an early offer, and customers do not need to contact the bank proactively.
Once contacted, customers have one month to seek advice and weigh up their options:
- Accepting - Resolves all commission claims on that agreement as a full and final settlement. Customers are then protected if future court rulings reduce redress values, so they will never have to repay anything. However, they cannot seek further money later if court rulings increase payouts. Because acceptance is voluntary, settlement offers cannot be referred to the FOS for review.
Declining or taking no action - Leaves the complaint paused until legal challenges conclude. Depending on the final court decision, the eventual payout could be higher, lower or zero.
Customers who do not receive an early offer will have their cases held until the proceedings and subsequent regulatory actions finish.
The FCA reminds anyone who is unhappy with past car finance agreements and hasn't yet complained that they should submit a claim directly to their lender for free.
What the industry and regulator say
Barclays Partner Finance says: 'We recognise that some customers have already faced a considerable wait for an outcome on their motor finance complaints. 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.'
Stephen Braviner Roman, FCA, General Counsel and co-lead on the motor finance project, commented: 'Fair settlement offers could result in some people getting money sooner. And 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.'
This story was first published on 16 January 2024. It was last updated on 3 November 2026 with details of the early settlement scheme.
Correction: This article originally described Barclays Partner Finance as trading as Clydesdale Financial Services Limited. This was incorrect and has been updated to clarify that Barclays Partner Finance is the trading name of Clydesdale Financial Services Limited.
