Legal dispute threatens delays to payouts in 2026

LONDON - Mercedes-Benz and Volkswagen are taking legal action against Britain’s financial watchdog [1] over a multibillion-pound compensation scheme for mis-sold car finance that could delay payouts 2026 to millions of drivers.

The challenge to the Financial Conduct Authority (FCA) will intensify a dispute that has also seen banks threaten to withdraw funding for motor finance if they do not get a better deal.

The scheme will compensate motorists who bought car finance products that were mis-sold to them, including where undisclosed commission was added to personal contract purchase (PCP) claims and other loans and credit agreements.

FCA unveiled plan to compensate mis-sold car finance customers after widespread mis-selling of car finance. But lenders argue compensation scheme is unfair and too costly.

Scale of the car finance scandal

The case relates to the increasingly controversial car finance scandal where lenders and dealers are accused of not disclosing the commission structure they may have received in return for higher interest rates. Regulators suggest there are more than 10 million agreements that may have been affected [2] which has led to the expectation that there could be a flood of car finance claims and PCP claims.

The FCA car finance scheme is designed to provide a standardised process for consumers seeking a car finance refund or PCP refund without needing to use claims management companies. However, legal opposition from major lenders raises uncertainty over how quickly compensation will be delivered [3].

Impact on motorists and claims process

The legal action is likely to set back the process for consumers who have been getting ready to make car finance claims, as some experts say a court decision could further delay any compensation payouts.

Car finance customers who think they may have been mis-sold motor finance are being advised to continue to collect information and undertake a car finance refund check, with the main signs being not being told about commission, paying high rates of interest or being directed to certain lenders.

In the event the scheme goes ahead, eligible customers could see compensation for mis-sold car finance paid directly by lenders, although the detail of this will also be looked at.

Industry pushback vs consumer protection

Mercedes-Benz and VW are among a number of firms fighting back against the FCA’s plans [4], accusing it of overstepping its mark. Consumer groups, meanwhile, argue the scheme is needed to tackle “fundamental problems” with car finance mis-selling and to restore consumer confidence in the sector.

The outcome of the case will determine whether the UK moves ahead with one of its largest consumer redress programmes since the PPI scandal or faces prolonged delays in delivering compensation to affected drivers.

What happens next

Courts will hear the challenge in coming months. For now, it is unclear when car finance compensation and PCP refunds will start, with millions waiting to hear how much they could get.

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References:

1. Mercedes-Benz and Volkswagen are taking legal action against Britain’s financial watchdog - https://www.reuters.com/sustainability/boards-policy-regulation/mercedes-benz-joins-challengers-12-billion-uk-car-finance-redress-scheme-2026-04-29/ 
2. Regulators suggest there are more than 10 million agreements that may have been affected - https://www.fca.org.uk/publications/policy-statements/ps26-3-motor-finance-consumer-redress-scheme
3. legal opposition from major lenders raises uncertainty over how quickly compensation will be delivered - https://www.ft.com/content/87c2fc42-1372-4da5-a08d-f8e8a49e713c?syn-25a6b1a6=1 
4. Mercedes-Benz and VW are among a number of firms fighting back against the FCA’s plans  - https://www.telegraph.co.uk/business/2026/04/29/mercedes-benz-sues-city-watchdog-over-car-finance-scheme/