FCA’s latest motor finance update explained: what’s changed and what it means for PCP claims

• The FCA’s compensation scheme for mis-sold PCP and car finance has been legally challenged, which means payouts are likely to be delayed.

• The FCA still intends to go ahead with compensation and says lenders should continue preparing for claims, although the FCA states that its unlikely for the tribunal case to be heard before October.

• The FCA have not yet specified what they will do if the scheme is successfully challenged, but have said lenders should prepare to handle and resolve complaints themselves.

The Financial Conduct Authority (FCA) has issued an update on their PCP car finance compensation scheme, and understandably, a lot of consumers are confused about what it actually means for their claims.

If you took out a PCP or Hire Purchase car finance agreement between 2007 and 2024, especially where commission arrangements were not properly explained, this latest announcement is important.

At Claim-Smart, we’ve broken down what happened, what’s changed and what this could mean for compensation claims moving forward.

You can read the full announcement on the FCA website here.

What is the FCA motor finance scheme about?

The FCA motor finance redress scheme is designed to compensate consumers who were not aware of commission arrangements between car dealerships and finance companies when they took out their car finance agreements.

In many cases, dealerships were able to increase the interest rate on a customer’s finance agreement in order to earn more commission. These were known as discretionary commission arrangements (DCAs).

The FCA is looking into situations where lenders and brokers failed to properly disclose these commission arrangements to customers.

They believe that 12.1 million people may be eligible for compensation because of this.

What did the FCA originally announce in March 2026?

Back at the end of March 2026, the FCA laid out their plans to launch a huge industry-wide redress scheme designed to deal with motor finance complaints in one central process.

The regulator estimated:

• Around 12.1 million finance agreements could potentially qualify

• Firms could pay out around £7.5 billion in compensation

• Most PCP car finance claims would be settled by the end of 2027

The scheme covered PCP and Hire Purchase agreements taken out between 6 April 2007 and 1 November 2024 where commission was paid by the lender to the broker or dealership.

So, what has changed in May 2026?

The latest news is that the FCA’s scheme has now been legally challenged.

Three lenders and a consumer group are arguing that parts of the scheme are unlawful and are asking the courts to block or “quash” it.

In practical terms this means:

• The compensation scheme is likely to be stalled but it has not officially been paused

• Payouts are likely to be delayed

• The final structure of the scheme may change depending on the outcome of each legal challenge

• A Tribunal hearing may not happen until at least October 2026, meaning lenders may have to prepare to manage claims without a centralised scheme to draw from.

Importantly however, this does not mean compensation has been cancelled.

The FCA has been very clear that it still supports the scheme and intends to defend it, but has not yet announced a plan if the scheme or part of it were quashed. 

Is the compensation scheme still happening?

At the moment, yes, but there is uncertainty about what it might look like.

The FCA says lenders should continue preparing for compensation claims while the legal challenge is ongoing. The FCA has also said they will continue to encourage consumers to complain directly to lenders.

The regulator says “Our priorities remain to secure fair compensation for consumers as quickly as possible and ensure a healthy motor finance market.”

What happens if the legal challenge succeeds?

This is where the latest FCA announcement becomes important. The FCA has not yet mentioned what would happen in this scenario, but they have said that if the scheme was to be quashed entirely, lenders may have to operate more independently.

That would likely mean:

• Consumers would need to submit all complaints directly to lenders

• Complaints would be handled individually by lenders, with no further extension of the complaints pause

• Lenders should be ready to proceed with complaints from November 2026 based on the decision of the Tribunal, potentially without further FCA rules or guidance on redress methodology

• Cases could go through the Financial Ombudsman Service

• The FCA would still intend to use supervisory powers to ensure firms contact those who haven’t complained

The FCA has already warned that this route could cost firms a lot more, whilst also creating longer delays for consumers.

How much compensation could people receive?

There is still no fixed payout figure because compensation depends on the individual agreement.

However, the FCA’s latest estimates suggest that the average compensation could be around £829 per agreement, with some consumers receiving more and some less.

However, the final amount would usually depend on:

• The finance agreement value

• The interest rate charged

• The type of commission arrangement used

• How much financial loss the consumer suffered

• When the finance agreement was taken out

Should consumers still make a claim?

The FCA is continuing to encourage consumers who are concerned about their car finance agreement to complain. They can either do this directly to their lender or, if they need a bit more guidance, through a claims management company like Claim-Smart.

However, the FCA has warned against doing both, as this could cause duplicate claims issues.  

The key points from the latest announcement

The latest FCA announcement and legal challenge has delayed the timeline for PCP compensation claims, but it has not put them to a stop entirely.

The FCA still believes millions of consumers may have been treated unfairly and says lenders should continue preparing for compensation.

The biggest question mark is now around how compensation will be delivered, whether it’s through the FCA’s industry-wide redress scheme or through individual complaints handled by lenders and the Financial Ombudsman Service.

For consumers, the important thing is that they should still complain, and the FCA has made clear it still expects customers affected by this to receive compensation in some form.

If you believe that you are eligible for compensation and would like to work with a claims management company to help guide you through the process, start your claim with Claim-Smart today.