Overview

LONDON - Lloyds Banking Group has warned that the £1.95 billion it has set aside to cover potential compensation for car finance claims may not be sufficient [1], as the car finance scandal continues to widen and more drivers come forward with complaints. At the same time, the Financial Conduct Authority has issued guidance aimed at ensuring that the rising number of car finance claims are handled clearly, fairly and in the best interests of consumers [2].

The twin developments underline the scale of the issue now facing the UK’s biggest lenders and the growing number of motorists questioning whether they were affected by mis-sold car finance.

Lloyds faces mounting compensation risk

The provision set aside by Lloyds relates to historic car finance agreements, including personal contract purchase products, where discretionary commission arrangements once allowed car dealers to increase interest rates in order to earn higher commissions. These practices were banned in 2021, but their legacy continues to surface as customers review older agreements.

Lloyds said predicting the final cost of compensation remains challenging. The bank cited uncertainty over how many customers will submit a car finance claim or PCP claim and how regulators may ultimately shape any industry-wide redress scheme. It acknowledged that if complaints continue to grow, further increases to the provision may be required.

Behind the figures, the warning reflects a broader concern within the banking sector that the financial impact of car finance mis-selling may take years to fully play out.

Why complaints are increasing

For many drivers, the issue only becomes clear long after the car has been sold or the agreement has ended. Customers are increasingly discovering that interest rates on their loans may have been influenced by commission structures that were not clearly explained at the time.

As public awareness grows, more motorists are exploring whether they have grounds for car finance claims or PCP claims linked to mis-sold car finance. Industry observers say this surge is less about sudden changes in behaviour and more about delayed understanding, as people revisit paperwork they signed years ago without full visibility of how deals were priced.

FCA sets expectations as claims volumes grow

The Financial Conduct Authority has responded by setting clearer expectations for how the growing volume of car finance claims should be handled. The regulator said its priority is to ensure that complaints are properly assessed, clearly communicated and resolved in a timely way.

Importantly, the FCA recognised that claims management companies play a role in helping consumers navigate what can be a complex and technical process. Many customers lack confidence in reviewing financial agreements or understanding whether car finance mis-selling may apply to their case.

The regulator said its focus is on maintaining standards, transparency and good consumer outcomes, rather than discouraging valid car finance claims connected to the car finance scandal.

Support for consumers seeking redress

The claims process can seem overwhelming for some drivers in the car finance scandal. Some agreements were signed years ago, paperwork can be hard to come by and the language can be technical, making some wonder where to begin or if they have a case at all.

Claims management firms say they help by breaking the process down, reviewing old documents, explaining eligibility in plain English and guiding customers step by step through a car finance claim or PCP claim where appropriate. Consumer groups add that while people are free to approach lenders directly, having professional support can provide reassurance, particularly for those worried about making mistakes or overlooking important details.

What this means for the industry

Lloyds’ admission that its £1.95 billion provision may fall short highlights the potential scale of redress still to come. As regulators consider next steps, banks, consumers and claims specialists are preparing for a prolonged period of scrutiny linked to the car finance scandal.

How lenders react to car finance mis-selling, and how customers feel about being treated, will likely shape trust in the financial sector for years to come. For many drivers, the result may not be as much about compensation as it is about confidence that lessons were learned and standards were raised.

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References:

1. Lloyds Banking Group has warned that the £1.95 billion it has set aside to cover potential compensation for car finance claims may not be sufficient - https://www.thebanker.com/content/29f463e3-f509-4ca6-8f90-1d1873541f05
2. the Financial Conduct Authority has issued guidance aimed at ensuring that the rising number of car finance claims are handled clearly, fairly and in the best interests of consumers - https://cardealermagazine.co.uk/fca-fires-warning-shot-to-claims-management-firms-as-car-finance-scandal-rumbles-on/321863