The UK government and the Financial Conduct Authority are taking steps that could change how people pursue legal claims and how drivers are compensated for historic car finance mis‑selling. Ministers have confirmed plans to reform litigation funding rules [1], and the FCA has indicated it may adjust its approach to a major compensation scheme for motorists affected by the car finance scandal [2].

Together, these developments could affect thousands of people pursuing car finance claims and may shape how fairly and easily drivers can address past mistakes in their finance agreements.

Government to Reform Litigation Funding

The government says it will introduce legislation lifting restrictions on litigation funders. This follows a 2023 Supreme Court decision limiting how funders could share in the proceeds of the cases they support. Several funders stopped backing legal claims, particularly consumer disputes in which individuals may not be able to afford the costs of taking action on their own, after that ruling.

Ministers say reforming these rules will widen access to justice and make it easier for more people to take legal action, including on issues such as mis‑sold car finance. Supporters of the changes argue that without litigation funding, many consumers would not have realistic options to challenge large organisations or recover money they believe was unfairly taken from them.

Some critics have argued that making it easier for litigation funders to back cases would increase legal action that benefits funders more than the claimants they support. It states that the government will provide safeguards for consumers, but the debate over how much access should be allowed and how much oversight should be permitted will likely continue.

FCA Signals Flexibility on Car Finance Redress

At the same time, the FCA has indicated it may refine its proposed redress scheme for drivers affected by mis‑sold car finance after receiving a wide range of feedback during a recent consultation. The FCA’s public consultation on the redress framework closed on Friday 12 December [3] and attracted submissions from lenders, trade bodies, consumer groups and legal experts.

The redress scheme is intended to cover car finance agreements taken out between 2007 and 2024 [4], a period during which car finance mis‑selling was widespread. A large number of complaints relate to personal contract purchase agreements, or PCPs. In many of these cases, brokers or dealerships received commission that may have influenced the interest rate charged to the customer, without that incentive being clearly explained.

A lack of clarity around these commission arrangements is at the heart of the car finance scandal, and this has driven an increase in car finance compensation claims in recent years.

Differing Views on How Compensation Should Be Paid

Responses to the FCA’s consultation revealed clear differences in opinion on how the compensation scheme should work. Consumer groups have called for the process to be as accessible as possible. They argue that most drivers had no way of knowing they were being mis‑sold car finance at the time, and that requiring detailed proof of financial loss could prevent legitimate claims from being heard, especially where agreements are old or paperwork is missing.

Lenders have taken a more cautious position. Some have said that a broad redress scheme could lead to claims that do not reflect genuine financial harm. They have called for clear eligibility rules so that compensation remains fair and manageable, and so that the overall cost to the industry can be controlled. There are also questions about how practical it will be to review large numbers of historic agreements within a reasonable timeframe and cost.

PCP Claims Remain Central

PCP claims continue to account for a large share of the car finance refund claims being discussed. Between 2007 and 2024, PCP agreements were one of the most common ways to finance a vehicle in the UK, often promoted as flexible and affordable because of lower monthly payments.

What many drivers did not realise at the time was that commission arrangements could influence the interest rate they were offered. As more information has come to light, drivers have raised questions about whether they were charged more than necessary and whether their finance was mis‑sold.

Drivers seek more details on who can expect compensation, what documents will be needed and when the claims process will likely begin. All these practical details form part of the ongoing shaping of the final redress scheme.

Practical Challenges in Reviewing Older Agreements

Even as the FCA works on the final design of the redress plan, there are practical challenges to overcome. Many of the agreements now under review are more than ten years old. Some drivers no longer have paperwork from their original deal, and others may struggle to recall the details of how their agreement was presented to them at the time.

Lenders have said that reviewing older car finance agreements will be a complex task. Some records may be incomplete or no longer available, and locating archived data could take time. It is also not yet clear how much evidence drivers will need to provide or how long each claim might take to assess.

Slow or confusing processes could keep people from coming forward, consumer groups warned. They urged the FCA to include simple and accessible tools in the final scheme. Drivers could be directed to an online eligibility checker or compensation estimator when they perform a car finance refund check to see if they have a valid claim and what value it could be.

Simple and transparent guidance and easy to access resources could ensure more drivers know their rights and choose to claim.

Final Scheme Expected in 2026

The FCA has said it plans to publish its final policy statement and implementation plan in the first half of 2026 [5]. That document will set out key details of the redress scheme, including who can claim, how compensation will be calculated, and when payouts are expected to begin.

In the meantime, drivers who believe they may have been affected by car finance mis‑selling are being encouraged to review their agreements. While PCP claims make up the majority of cases so far, other types of car finance could also be included if undisclosed commission arrangements influenced the terms of the deal. Taking time to locate old paperwork and understand the terms of past agreements may help people prepare ahead of the FCA’s final decision.

The potential scale of the redress scheme has led some to compare it with the long‑running payment protection insurance programme, which eventually resulted in more than £38 billion in compensation. Whether the car finance scandal will reach similar levels remains unclear, but it is evident that both consumers and lenders will be affected by the decisions that follow.

A Wider Shift Toward Fairer Treatment for Consumers

The government's plan to reform litigation funding and the FCA's willingness to refine the car finance compensation scheme signal a shift towards making justice and support more accessible to ordinary people. These changes could help those seeking car finance claims or recovering money lost due to mis-sold car finance.

Collectively, these reforms signal an overall shift in consumer protection policy in the UK. They suggest both policymakers and regulators are realising that obstacles often have stood in the way of people challenging unfair treatment. With all of these changes in place, 2026 may mark a turning point in the way the country deals with the effects of the car finance scandal and ensures just outcomes in future disputes.

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References:

1. Ministers have confirmed plans to reform litigation funding rules - https://www.ft.com/content/50990c82-7338-4e3e-a813-cb5cae292f0f
2. the FCA has indicated it may adjust its approach to a major compensation scheme for motorists affected by the car finance scandal - https://uk.finance.yahoo.com/news/fca-prepared-tweak-car-loan-131326394.html
3. The FCA’s public consultation on the redress framework closed on Friday 12 December - https://www.fca.org.uk/news/statements/motor-finance-compensation-scheme-consultation-progress-and-timing
4. The redress scheme is intended to cover car finance agreements taken out between 2007 and 2024 - https://www.fca.org.uk/news/statements/fca-consults-motor-finance-compensation-scheme
5. The FCA has said it plans to publish its final policy statement and implementation plan in the first half of 2026 - https://www.fca.org.uk/news/press-releases/14m-unfair-motor-loans-compensation-proposed-scheme