Two people could borrow the same amount to buy a car and still end up receiving very different compensation. The reason may come down to something neither customer knew much about when they signed their agreement: the dealer's commission.

Motor finance lenders and dealerships used different commission arrangements over the years. Some allowed dealers to earn more by charging customers higher interest rates. Others involved payments that were not properly explained before the finance was agreed.

These differences are now important to the Financial Conduct Authority's (FCA) compensation scheme, which aims to address unfair historic motor finance commission practices.

The FCA estimates average car finance compensation of around £829 per eligible agreement [1]. However, that figure is only an estimate. The amount someone receives, if anything, will depend on their individual agreement.

The method used to calculate compensation is also being challenged in court.

Following a further case management hearing in October, the FCA confirmed that the Upper Tribunal will now hear the legal challenges from 16 February to 3 March 2027 [2]. The hearing was previously due to finish on 26 February.

The Tribunal has requested further economic evidence before considering the case. It has not decided whether the compensation calculations need to change.

Why might two similar car finance agreements lead to different refunds?

Most motorists focus on the monthly payment when choosing car finance. They may also compare the deposit, interest rate and final payment before deciding whether a deal is affordable.

What is less obvious is how the dealership gets paid for arranging the finance.

Prior to January 2021 there were some lenders that used a discretionary commission arrangement which allowed the dealer to manipulate the interest rate on your loan and potentially make more commission if they increased the interest rate.

Some had commission structures or relationships with lenders which may not have been disclosed to you.

Take 2 people buying a car and borrowing £10,000.

One person could have been charged a higher interest rate due to the dealer being able to make more commission by raising the interest rate.

Another could have been on a set commission structure.

Their borrowing amounts were identical, but the circumstances behind the finance were different.

That matters because the FCA's compensation scheme considers more than how much someone borrowed. It also looks at the commission arrangement and the financial harm linked to it.

As a result, two eligible consumers may not receive the same car finance refund.

How does the FCA calculate car finance compensation?

The FCA introduced its Motor Finance Redress Scheme on 30 March 2026 [3] to deal with certain unfair commission practices in historic finance agreements.

The scheme does not propose a standard refund for everyone.

Instead, it uses different calculations depending on the type of commission arrangement and the circumstances of the agreement.

For many eligible cases, the FCA's approach combines estimated financial loss with commission information. Compensatory interest may also be included.

Different rules apply to certain agreements involving particularly large undisclosed commissions.

This means someone who paid extra interest because of an unfair commission arrangement may receive a different amount from a customer whose complaint concerns a large commission payment that was never properly disclosed.

The scheme is intended to give lenders a consistent way to assess millions of agreements without requiring every consumer to pursue their own court case.

However, parts of this approach are being challenged, including how the FCA measures financial harm and determines compensation.

Why are the compensation calculations being challenged?

One difficulty with assessing historic car finance claims is that dealerships and lenders did not all work under the same arrangements.

The commission paid on one agreement might have been very different from another. The interest rate, lender relationship and information given to the customer could also vary.

The FCA used historical lending data and economic analysis to develop a compensation framework intended to account for these differences.

However, some organisations disagree with parts of the regulator's approach.

Volkswagen Financial Services, Mercedes Benz Financial Services and Crédit Agricole Auto Finance have challenged aspects of the scheme [4], including its treatment of consumer harm and the calculation of redress.

Consumer Voice has raised separate concerns about whether the proposed compensation would adequately reflect the losses experienced by affected motorists.

The FCA maintains that a single compensation scheme is a more practical way to handle large numbers of historic complaints.

These are the arguments being considered by the Upper Tribunal. No decision has been made on whether the calculation method should be changed.

Why does the Tribunal want more economic evidence?

The Tribunal needs to examine the information behind the FCA's calculations, including how the regulator assessed the effect of different commission arrangements on borrowing costs.

For example, an economist may look at whether a particular commission structure influenced the interest rate a customer paid. Another question is whether the same compensation method works fairly across different types of lenders and finance agreements.

The Tribunal has allowed further expert evidence on these issues.

Under its directions published on 26 October 2026, the parties must complete their remaining reports and identify where their experts agree or disagree before the hearing begins [5].

The FCA must also provide additional information to Consumer Voice under confidentiality arrangements.

These steps give the Tribunal more material to consider. They do not mean the judges have found anything wrong with the FCA's calculations.

Could the £829 average compensation amount change?

The FCA estimates that around 12.1 million agreements could qualify for compensation.

It expects an average payment of approximately £829 per eligible agreement, with total consumer payouts estimated at £7.5 billion if 75% of eligible consumers take part.

These figures help show the potential scale of the car finance scandal. They do not tell individual motorists how much they will receive.

A mis-sold car finance refund could be higher or lower than £829. Some agreements may not qualify for compensation at all.

The legal challenges could result in changes to the compensation framework, but the Tribunal has not ordered any changes.

It is therefore too early to say whether the average payment will increase, decrease or remain the same.

For now, £829 remains the FCA's estimate rather than a guaranteed refund.

Does having a PCP agreement mean compensation is due?

No. Personal Contract Purchase (PCP) is one of the finance products covered by the scheme, but having a PCP agreement does not automatically mean it was unfair.

The FCA's scheme covers potentially eligible agreements entered into between 6 April 2007 and 1 November 2024.

For a PCP compensation claim, the date and type of agreement are only part of the assessment. The commission arrangements and other eligibility rules also matter.

This applies whether the customer still owns the vehicle, sold it or returned it at the end of the agreement.

Motorists considering PCP claims can review their old finance details to establish whether further investigation may be worthwhile.

If you do a PCP claim check or car finance refund check you may find past agreements that could benefit from further investigation.

However, these checks cannot guarantee compensation or establish the amount someone might receive.

Will the legal challenges affect when compensation is paid?

The compensation calculations are only one part of the wider legal dispute.

The FCA Motor Finance Compensation Scheme has been partially suspended since July 2026 [6].

Lenders must continue preparing, but they are not currently required to calculate or pay compensation under the suspended rules.

Following the FCA's announcement on 26 October, the Upper Tribunal car finance hearing is now scheduled for 16 February to 3 March 2027.

A judgment is expected in the months after the hearing.

For motorists who had hoped to receive car finance payouts 2026, the original timetable has changed considerably.

Also remember that there may be more to come when its comes to car finance compensation 2027 once this hearing has finished.

Once approved the banks will have the opportunity to start implementing the scheme following any guidelines that are in place.

The FCA will need to allow more time if there are any changes that need to be made.

There is still no confirmed timetable for when individual consumers will receive compensation.

Can motorists still make car finance claims?

Yes. Consumers do not have to wait for the Tribunal hearing before looking into a historic agreement.

Anyone concerned about car finance mis-selling can still complain directly to their lender for free.

If the original finance paperwork is missing, the lender's name or details of the agreement may still be available through bank statements, credit records or previous correspondence.

Motorists can also choose to seek help from an FCA regulated claims management company or solicitor, although professional fees may apply.

Those who have already submitted complaints generally do not need to start again because the hearing has been extended.

The ongoing proceedings may affect how compensation is eventually calculated, but they do not prevent consumers from raising complaints.

When will PCP claims be settled?

There is no confirmed payment date yet. The Tribunal hearing will run until 3 March 2027, with a judgment expected in the following months. Motorists will have a clearer idea of when compensation might begin once the court has reached its decision.

What does this mean for motorists waiting for compensation?

The current legal dispute highlights why compensation is not necessarily straightforward, even when an agreement falls within the FCA's eligibility period.

Different commission arrangements can affect how financial harm is assessed. That can lead to different compensation outcomes for motorists who borrowed similar amounts.

The Tribunal will consider the legal challenges with the benefit of further economic evidence when the hearing begins in February 2027.

Until a decision is reached, the FCA's existing calculations remain subject to the partial suspension.

For consumers following the latest FCA car finance claims update, the important point is that the £829 average is only an estimate.

The amount of any compensation will depend on the agreement, the final rules and the outcome of the legal proceedings.

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References:

1. The FCA estimates average car finance compensation of around £829 per eligible agreement -  https://www.fca.org.uk/publication/policy/ps26-3.pdf
2. Following a further case management hearing in October, the FCA confirmed that the Upper Tribunal will now hear the legal challenges from 16 February to 3 March 2027 - https://www.fca.org.uk/publication/documents/motor-finance-directions-oct-2026.pdf
3. The FCA introduced its Motor Finance Redress Scheme on 30 March 2026 - https://www.fca.org.uk/publications/policy-statements/ps26-3-motor-finance-consumer-redress-scheme
4. Volkswagen Financial Services, Mercedes Benz Financial Services and Crédit Agricole Auto Finance have challenged aspects of the scheme - https://consumervoice.uk/cars/fca-car-finance-compensation-challenge/
5. Under its directions published on 26 October 2026, the parties must complete their remaining reports and identify where their experts agree or disagree before the hearing begins - https://www.fca.org.uk/publication/documents/motor-finance-directions-26-oct-2026.pdf
6. The FCA Motor Finance Compensation Scheme has been partially suspended since July 2026 - https://www.fca.org.uk/news/statements/motor-finance-scheme-partially-suspended