Lloyds Banking Group profits have fallen 36% after it was hit by rising costs in the UK car finance scandal [1]. The tumbling figures come as the financial exposure to the industry is becoming clearer with the top lenders all stumping up large reserves for mis-sold motor finance payouts. The fallout has not stopped at Lloyds, with other lenders also facing greater scrutiny over historic lending, and calls for customer redress have been reignited.

The news also arrives while the Financial Conduct Authority (FCA) is in the process of an investigation into discretionary commission arrangements (DCAs). These allowed car dealers and lenders to vary interest rates to their own advantage. The regulator’s findings could result in one of the largest compensation programmes in recent UK financial history, similar in scale to the PPI scandal.

Industry Faces Growing Pressure Over Car Finance Mis-Selling

The UK’s car finance sector is under intense pressure following revelations about how interest rates were set on hire purchase and personal contract purchase (PCP) agreements. A DCA lender allowed some car dealers to have the discretion to increase the rate, which meant that they both profited from higher commissions at the expense of the customer. Now illegal, this is the main driver behind the majority of car finance mis-selling claims.

Banks are recalibrating forecasts to factor in potential repayments, with analysts suggesting this could radically transform the financial landscape. Billions of pounds of total redress will hit balance sheets and investor confidence. For consumers, it will represent a breakthrough in accountability for unfair practices in car finance and a push for more transparency in lending.

Those affected are encouraged to follow the latest updates on car finance claims in the UK, as the FCA continues to define how compensation will be distributed and when the scheme will formally begin.

FCA Consultation Opens: What the Compensation Scheme Involves

The FCA launched its consultation on 7 October 2025 [2], which proposed a new industry-wide compensation scheme that would provide consistent redress to customers who were mis-sold car finance. Covering all motor finance agreements that have taken place between 6 April 2007 and 1 November 2024, it will ensure that millions of consumers will be eligible for review.

Customers may be paid on average around £700 per agreement depending on their individual circumstances, the regulator estimates [3]. The FCA expects to pay compensation to millions of mis-sold car finance customers next year.

The regulator's consultation also confirmed that the redress process will be standardised [4] to stop inconsistent rulings across lenders and dealerships. Claims can still be made either through your finance provider or the Financial Ombudsman Service (FOS), both of which are free to use. The FCA expects to start making formal payments of redress in 2026, subject to responses to the consultation and the finalisation of its guidance.

The focus is on Lloyds but other major banks and finance firms will have similar provisions, with their response to the issue defining the next stage of customer compensation for the car finance scandal.

What Should You Do Now?

The FCA has now proposed an industry-wide compensation scheme for unfair car finance agreements between April 2007 and November 2024, with average payouts expected to be around £700 per agreement. You can still choose to complain directly to your lender, go to the Financial Ombudsman Service, or wait for the FCA’s redress scheme, expected to begin in 2026, all of which are free to do.

If you’ve already submitted a complaint, your case will remain in the system and you’ll likely be among the first to hear once the FCA scheme launches. If not, this may be a good opportunity to review your existing agreements or check if you were affected. Many consumers remain unaware that they had a discretionary commission added to their deal, particularly on PCP or hire purchase agreements signed years ago.

You can also visit consumer resources like Reclaim247 to understand eligibility, next steps, and your options for securing a potential car finance refund.

Why Take Action Now?

If you’ve already complained, you’ll be among the first to be contacted once the FCA scheme begins. Lenders are only required to contact customers they can trace [5]. If you’ve moved or your old details have changed, it’s worth ensuring your complaint and contact info are up to date.

Complaining now also means your case is already logged and ready for review when the scheme starts. Early submission ensures you won’t miss potential deadlines or updates. Many consumers choose to file complaints proactively, even while awaiting FCA approval, to protect their place in the queue.

If you haven’t yet started, Reclaim247 can help trace your finance history and submit a complaint on your behalf, using just your name, address, and date of birth. There’s no paperwork, no hassle, and it operates on a no win, no fee basis, offering a straightforward path to potential compensation.

For those wondering how long does Reclaim247 take, timelines vary by lender response times and the FCA’s processing schedule, but early action helps avoid unnecessary delays once redress payments begin.

Why Some Consumers Choose a Claims Management Company

Consumers can pursue complaints on their own behalf, although some choose to engage a claims management company. These companies will typically check old agreements, track down missing finance records and make sure claims are submitted properly. This can be useful where people have multiple agreements in the past and/or do not have all their paperwork.

It can be difficult to navigate complex finance and PCP claims, so having a firm with a proven track record such as Reclaim247 is invaluable. Our panel of finance claims experts reviews all cases individually and determines whether or not they are eligible under the FCA’s proposed framework. Our understanding of the financial and regulatory sides of the redress process means we can help make sure valid cases aren’t missed.

Choosing the best car finance claim company comes down to trust, transparency, and a clear understanding of the no win, no fee model. With the FCA finalising details of its compensation scheme, consumers can now seek professional guidance to help prepare their paperwork and maximise their chances of receiving a fair redress when the scheme is live from 2026.

Summary:

Lloyds’ profit decline underscores how the UK’s car finance scandal has reshaped both the banking industry and consumer confidence. The FCA consultation has begun and compensation plans are underway. Millions are due a refund and waiting on it with baited breath. Whether it be claiming yourself, through the Ombudsman or with professional help, there's no time like the present to get your voice heard and your refund sorted.

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References:

1. Lloyds Banking Group profits have fallen 36% after it was hit by rising costs in the UK car finance scandal - https://www.theguardian.com/business/2025/oct/23/lloyds-profits-plunge-as-it-feels-impact-of-uk-car-finance-scandal
2. The FCA launched its consultation on 7 October 2025 - https://www.fca.org.uk/news/statements/fca-consults-motor-finance-compensation-scheme
3. Customers may be paid on average around £700 per agreement depending on their individual circumstances, the regulator estimates - https://www.fca.org.uk/news/press-releases/14m-unfair-motor-loans-compensation-proposed-scheme
4. the redress process will be standardised - https://www.fca.org.uk/publication/consultation/cp25-27.pdf
5. Lenders are only required to contact customers they can trace - https://www.kslaw.com/news-and-insights/motor-finance-litigation-moves-up-a-gear-with-fca-plan