Overview

LONDON — Santander UK has raised the amount it has set aside for potential motor finance compensation to £461 million [1] as complaints over historic car lending continue to gather pace. The decision underlines the growing scale of the car finance scandal and the pressure facing banks as customers pursue redress for mis-sold car finance.

How customers became caught up

At the centre of the issue are discretionary commission arrangements once common in car finance and personal contract purchase deals. Under these structures, car dealers could increase their own commission by charging customers higher interest rates, often without making that link clear.

Many drivers now say they trusted dealerships to secure competitive deals, only to later discover they may have paid more than necessary. This has led to a surge in car finance claims and PCP claims from customers who believe they were affected by car finance mis-selling.

Consumer groups say the complaints reflect frustration among ordinary motorists who feel they were kept in the dark about how their car loans were priced.

Why the provision has increased

Santander UK said the higher provision reflects a reassessment of how many car finance claims and PCP claims it expects to receive and how many may ultimately succeed. The bank also factored in the possibility of a broader redress scheme being introduced by the Financial Conduct Authority.

While the £461 million figure is substantial, Santander said it is intended to ensure customers are treated fairly [2] and that valid complaints linked to mis-sold car finance can be resolved.

Impact on Santander’s finances

The increased provision has taken a noticeable bite out of Santander UK’s results, but the bank still reported a strong rise in annual pre-tax profit. Executives pointed to resilient consumer lending and higher interest income as helping to offset the growing cost of car finance claims.

Behind the numbers, however, the issue remains a source of uncertainty. The final bill will depend on how regulators proceed and how many customers pursue claims connected to the car finance scandal.

Growing tension with the regulator

Santander has been increasingly vocal in its criticism of the Financial Conduct Authority’s approach. The bank argues that lenders were operating within the rules that applied at the time and has warned against a retrospective compensation model.

The FCA is reviewing whether to introduce an industry-wide redress scheme [3] for car finance mis-selling. Any decision would affect not only Santander but the wider banking and motor finance sector, where billions of pounds could be at stake.

What this means for drivers

For drivers who took out car finance or PCP agreements before discretionary commissions were banned in 2021, the larger provision offers hope that complaints will be taken seriously. Many consumers are now submitting car finance claims after becoming aware of the issue through media coverage and claims management firms.

Santander said customers who believe they were affected by mis-sold car finance should contact the bank directly. The lender stressed that complaints do not need to be made through third parties and can be handled without charge.

Looking ahead

With the bill already topping £460 million, Santander UK knows the story is far from over. If more drivers come forward with complaints or the regulator widens the compensation scheme, the cost could climb further. How the bank and the wider industry respond to car finance mis-selling will matter well beyond the balance sheet, helping to determine whether customers regain confidence after the car finance scandal or remain sceptical about how fairly lenders treat them.

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References:

1. Santander UK has raised the amount it has set aside for potential motor finance compensation to £461 million - https://www.reuters.com/business/finance/santander-uk-reports-14-jump-annual-pretax-profit-2026-02-04/ 
2. While the £461 million figure is substantial, Santander said it is intended to ensure customers are treated fairly - https://www.theguardian.com/business/2026/feb/04/santander-fca-compensation-scheme-car-loan-scandal-bill
3. The FCA is reviewing whether to introduce an industry-wide redress scheme - https://www.fca.org.uk/publications/consultation-papers/cp25-27-motor-finance-consumer-redress-scheme