The UK car finance mis-selling situation continues to evolve at pace. Since our last update in November, several important regulatory, financial and political developments
have shaped the landscape.
Here is where things stand in early 2026.
The FCA Consultation Has Closed
The consultation on the proposed industry-wide redress scheme formally closed in December 2025. The Financial Conduct Authority is now reviewing responses from lenders, consumer groups, and legal stakeholders.
Final scheme rules are expected in February or March 2026. Once confirmed, firms will move into implementation planning, with operational frameworks designed to identify affected customers and calculate compensation.
The regulator continues to signal its intention to introduce a structured, industry-wide mechanism rather than leaving matters to be resolved solely through individual complaints and court proceedings.
Complaints Handling Pause to End on 31 May 2026
The Financial Conduct Authority has confirmed that the temporary pause on handling certain motor finance complaints will be lifted on 31 May 2026.
This date is earlier than the originally proposed deadline of 31 July 2026. The regulator stated that bringing the date forward reflects its commitment to delivering fair and timely outcomes for consumers.
Once the pause ends, firms will resume complaint handling. In most cases, lenders will have up to eight weeks from 31 May 2026 to issue a final response on claims that fall outside any formal redress scheme, although the exact timeframe depends on when the case was originally received.
The FCA has also made clear that firms should already have been investigating complaints during the pause period. The additional time is intended to ensure operational readiness rather than to reset the process.
Banks and Carmakers Increase Provisions
Major UK banks and captive finance arms have been reserving substantial sums in anticipation of redress liabilities.
Santander UK recently boosted its provision to £461 million, up from around £295 million previously set aside in late 2024.
Lloyds Banking Group, one of the lenders most exposed to the scandal, has flagged a provision of about £1.95 billion. The group increased its redress allocation throughout 2025 and has acknowledged that this reserve may not fully cover all eventual liabilities due to the volume of complaints and the evolving regulatory framework.
Smaller and specialist lenders also appear to be preparing for substantial redress costs. Previous public disclosures show Close Brothers once earmarked around £300 million for potential compensation, while Barclays increased its provision to approximately £325 million in 2025 as court rulings and the FCA’s findings narrowed the scope for unlimited liability but still maintained significant risk exposure.
On the carmaker side, Mercedes-Benz reported that its UK finance arm set aside roughly €422 million (around £370 million) to cover potential payouts. That provision contributed to a significant trading loss for the division and highlighted that manufacturers with captive lenders face material exposure under the proposed redress
framework.
Taken together, these provisions suggest that lenders and finance arms are preparing for a bill that could range into the low billions of pounds, in line with the regulator’s expectation that total compensation across the industry might approach £8–10 billion once the redress scheme is fully implemented.
Lobbying and Possible Scheme Adjustments
Industry lobbying has intensified in recent weeks.
According to reporting by the Financial Times, large UK banks including Barclays, Santander UK, and Lloyds Banking Group have made representations regarding the projected scale and allocation of compensation. At the same time, captive finance arms linked to manufacturers such as Mercedes-Benz, BMW, and Volkswagen have also
engaged with policymakers.
The central issue concerns how liability is distributed.
Under earlier modelling, captive lenders were expected to bear a substantial share of the overall redress bill. Industry figures reportedly suggested that manufacturer-linked finance arms could account for close to half of total compensation exposure. Banks and carmakers have argued that certain categories of agreements should attract reduced or adjusted liability, particularly where customers did not clearly understand which finance provider sat behind the dealership.
Industry submissions also reference broader economic considerations, including the effect of large-scale provisions on lending capacity and capital allocation within UK operations. While the regulator continues to prioritise consumer redress, the final scheme design may reflect refinements following these discussions.
When Could Compensation Be Paid?
The timeline now appears to follow three key stages:
- Final FCA scheme announcement in February or March 2026.
- Complaint handling resumes after 31 May 2026.
- Compensation payments likely begin during the second half of 2026.
While precise figures will vary case by case, earlier regulatory modelling referenced average compensation in the region of several hundred pounds per agreement, with higher totals possible for consumers holding multiple qualifying contracts.
The coming weeks should deliver the clarity the market has been awaiting. Once final rules are confirmed, implementation and payouts move from expectation to execution.
Further updates will follow as soon as the regulator publishes its final position.
