Lloyds Banking Group has confirmed it will participate in the Financial Conduct Authority's (FCA) Motor Finance Compensation Scheme and will not join legal action by a group of other lenders [1].

This means the bank plans to offer compensation to eligible customers if the FCA car finance redress scheme is confirmed by the Upper Tribunal.

The announcement marks a significant step in the ongoing car finance scandal, which could result in around £7.5 billion being paid to consumers with eligible motor finance agreements entered into between 6 April 2007 and 1 November 2024.

Lloyds Backs the Compensation Scheme

Earlier this year, Lloyds confirmed it had considered challenging the FCA's proposals but ultimately decided against taking legal action.

In a statement, the bank said it remained disappointed with aspects of the regulator's conclusions but believed participating in the scheme was the right outcome for both customers and shareholders.

Unlike several lenders that continue to contest elements of the scheme before the Upper Tribunal [2], Lloyds has committed to implementing the FCA's approach if it proceeds.

What Could Customers Receive?

The FCA estimates that eligible consumers could receive an average car finance compensation payment of around £829 per agreement [3].

However this is not a set amount and does not mean all successful car finance claims are the same value.

Amounts will be determined by the individual finance agreement and the commission arrangement that was in place and how the FCA's redress methodology is applied to each individual case.

Who Could Be Eligible?

The compensation scheme covers certain motor finance agreements taken out between 2007 and 2024, including many PCP car finance and hire purchase agreements.

The FCA's review found that some historic commission arrangements, particularly discretionary commission arrangements, created unfair outcomes because consumers were not properly informed about how commission could influence the cost of borrowing.

Drivers who believe they may have been affected by mis-sold car finance or car finance mis-selling may wish to review previous agreements to determine whether they fall within the scope of the scheme.

This may include motorists considering PCP claims, a PCP claim, or other PCP finance claims relating to historic commission arrangements.

Compensation Still Depends on the Legal Challenge

Although Lloyds has confirmed it will participate, compensation payments have not yet begun.

The FCA's Motor Finance Compensation Scheme remains partially suspended while legal challenges brought by several lenders are considered by the Upper Tribunal [4].

The hearings are expected to take place in December 2026 or February 2027, with a judgment expected afterwards.

As a result, previously anticipated payouts 2026 are now considered unlikely, with the FCA expecting compensation to begin during 2027 if the scheme is upheld and no further appeals delay implementation.

What Should Motorists Do?

Motorists who think they may have been affected by the car finance scandal do not need to wait for the legal proceedings to conclude before understanding their options.

Consumers can complain directly to their lender free of charge using the FCA's complaint template or choose to use an FCA-regulated claims management company or seek independent legal advice if they prefer professional assistance.

Those wishing to carry out a car finance refund check or explore a possible car finance refund should ensure they rely on trusted sources rather than unsolicited marketing.

Similarly, drivers considering mis-sold PCP car finance, a PCP compensation claim, a PCP claim check or a possible PCP refund should remember that eligibility will depend on the individual circumstances of their finance agreement.

Lloyds Signals a Different Approach

Lloyds' decision to support the FCA's redress scheme sets it apart from lenders that continue to challenge parts of the compensation framework through the courts.

While the legal process continues, the bank's position provides greater certainty that, if the scheme proceeds as planned, eligible Lloyds customers will be included in the industry's wider car finance compensation programme.

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References:

1. Lloyds Banking Group has confirmed it will participate in the Financial Conduct Authority's (FCA) Motor Finance Compensation Scheme and will not join legal action by a group of other lenders - https://www.aol.co.uk/articles/lloyds-pay-829-compensation-customers-065900000.html
2. several lenders that continue to contest elements of the scheme before the Upper Tribunal - https://consumervoice.uk/cars/fca-car-finance-compensation-challenge/
3. The FCA estimates that eligible consumers could receive an average car finance compensation payment of around £829 per agreement - https://www.fca.org.uk/publication/policy/ps26-3.pdf
4. The FCA's Motor Finance Compensation Scheme remains partially suspended while legal challenges brought by several lenders are considered by the Upper Tribunal - https://www.fca.org.uk/news/statements/motor-finance-scheme-partially-suspended