Lloyds Bank: Car Finance Claims Are Damaging Britain

Lloyds Banking Group has issued a stark warning that the Financial Conduct Authority’s (FCA) proposed compensation plan for millions of motorists affected by the UK’s car finance scandal could have far-reaching economic consequences. The bank, one of the UK’s largest lenders involved in motor finance, said that the regulator’s redress scheme risks “damaging Britain” by imposing multi-billion-pound costs on the financial sector [1]. Lloyds’ statement follows mounting concerns from lenders about the scale of compensation payouts under the FCA’s plan, which aims to resolve historic cases of car finance mis-selling claims involving commission-linked interest rates.

The regulator says the scheme is needed to rebuild trust in the wake of evidence of widespread malpractice in which some lenders allowed brokers or dealerships to inflate interest rates so that they could earn bigger commissions. Banks have warned that retrospective payments risked unsettling markets and damaging investment, but the FCA said fairness to consumers must be the top priority.

FCA Extends Consultation Deadline Into Motor Finance Compensation to December 12

The FCA this week confirmed that its consultation on the proposed motor finance compensation scheme has been extended to 12 December 2025  [2] from 7 October 2025 to allow lenders, consumer groups and industry experts more time to submit additional feedback.

In a statement, the regulator said it had decided to grant the extension because of the “volume of data and the complexity of analysis required”. The consultation forms part of the regulator’s wider response to the Supreme Court’s August 2025 ruling [3] that some fixed commission agreements had breached fair-value obligations.

The FCA estimates that millions of mis-sold customers would receive redress under the proposed scheme. Based on an estimate of around £700 per agreement, the scheme would cover millions of agreements made between 6 April 2007 and 1 November 2024  [4] (a 17-year period). This period captures a significant number of Personal Contract Purchase (PCP) and Hire Purchase (HP) deals.

The FCA says having one single coordinated scheme would end years of piecemeal litigation and provide certainty for both consumers and lenders. The regulator said: “We recognise the need for certainty in the market and are working at pace to ensure that those who were treated unfairly receive redress.”

But the move has been strongly opposed by some of the largest lenders, including Lloyds and Barclays. Lloyds said such a “systemic redress exercise” “could undermine confidence in the UK’s banking system” and could result in a tightening of credit. It and others in the industry have warned the total bill could run into tens of billions of pounds, with fears the UK could be facing its biggest consumer compensation exercise since the PPI scandal.

A Widening Rift Between Regulators and Banks

Disagreement about the FCA’s proposed car finance claims plan has revealed a fault line between its consumer protection mission and the financial sector’s stability worries. Bank executives have said that the compensation scheme will unfairly penalise institutions that complied with the rules at the time. They have also warned that the retrospective application of new standards of fairness risks “unintended consequences” for lending, jobs and the wider economy.

On the other hand, consumer rights campaigners and finance claims experts have praised the regulator’s decision to put an end to years of mis-selling. Many consumers claim they were unaware that brokers or dealers were pocketing secret commissions that impacted the interest rate they were charged. Campaigners say these car finance mis-selling claims are indicative of systematic problems that should have been addressed years ago by the FCA.

The FCA expects to pay compensation to millions of mis-sold car finance customers next year. This is a timely demonstration of regulator urgency. However, the process has not been plain sailing, with industry pushback to the FCA’s consumer expectations.

Consumer Impact and Timeline

The immediate impact for consumers is that they will not be eligible for compensation under the FCA’s redress scheme until 2026, when the consultation [5] ends and final rules are published in early 2026. In the meantime, complaints to lenders and the Financial Ombudsman Service (FOS) have been paused until 4 December 2025 [6] under the regulator’s temporary order in January 2024.

The FCA says the average payout to those customers who have been charged commission-driven pricing will be around £700, however this may be more or less for each customer. Many drivers affected have already submitted a complaint or sought help from the best car finance claim company or claims management company, with many more to follow when official guidance is released after the final framework is approved.

The FCA's consultation paper [7] said that the scheme will provide "an efficient and consistent process for redress" rather than a repeat of the long timelines of previous financial mis-selling scandals. Consumers who entered into PCP or Hire Purchase agreements in the relevant period are advised to check their finance agreement documents to see if they were told about any commission.

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.

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 [8]. 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.
• If you haven’t complained yet, Reclaim247 can help trace your finance history and submit a complaint on your behalf, using just your name, address, and date of birth. No paperwork. No hassle. No win, no fee.

Considering the Services of a Claims Management Company

Although the FCA recommends motorists take advantage of the regulated, free-to-use complaint routes, many consumers are using regulated specialists such as claims management companies to do this for them. Enlisting the help of a regulated specialist who has a good reputation can help ensure that all of the required documentation, complaint submission and follow-ups are dealt with correctly and efficiently. The FCA does recommend that consumers ensure fees are agreed and the company is authorised before signing an agreement.

If you’re considering professional assistance, Reclaim247 provides access to a team of finance claims experts specialising in car finance mis-selling and PCP claims. Their process typically takes only a few weeks to gather records, though the full redress timeline depends on when the FCA finalises its scheme, so if you’re wondering how long does Reclaim247 take or how long does a PCP claim take, the answer may depend on the regulator’s rollout schedule.

The FCA is on the verge of issuing its final ruling on a highly-debated issue. Will the regulator discover a ‘happy medium’ to satisfy consumers and the industry? The response will determine whether the UK’s car finance scandal is a case study on corporate accountability or public trust in action.

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References:

1. The bank, one of the UK’s largest lenders involved in motor finance, said that the regulator’s redress scheme risks “damaging Britain” by imposing multi-billion-pound costs on the financial sector - https://www.telegraph.co.uk/business/2025/11/05/car-finance-compensation-scheme-delayed-backlash-banks/
2. The FCA consultation on proposed motor finance compensation scheme has been extended to 12 December 2025 - https://www.fca.org.uk/news/statements/motor-finance-compensation-scheme-consultation-progress-and-timing
3. Supreme Court’s August 2025 ruling - https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf
4. Based on an estimate of around £700 per agreement, the scheme would cover millions of agreements made between 6 April 2007 and 1 November 2024 - https://www.fca.org.uk/news/press-releases/14m-unfair-motor-loans-compensation-proposed-scheme
5. FCA consultation - https://www.fca.org.uk/news/statements/fca-consults-motor-finance-compensation-scheme
6. FCA complaint paused until 4 December 2025 - https://www.fca.org.uk/news/statements/firms-given-until-december-2025-respond-motor-finance-commission-complaints
7. FCA's consultation paper - https://www.fca.org.uk/publication/consultation/cp24-15.pdf
8. 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