Lloyds will be paying certain customers £829 in compensation. The bank confirmed earlier this year that it would not launch a legal challenge against the Financial Conduct Authority (FCA) redress scheme.
It will participate and compensate affected customers who were allegedly mis-sold car finance. Over 12 million UK drivers (37% of agreements made) will receive a portion of £7.5 billion after being overcharged for car finance between 2007 and 2024.
People may have been overcharged due to “discretionary commission arrangements” – where dealers were able to increase interest rates to earn more commission from a sale. Many lenders didn’t properly disclose important information to customers about their agreements. This broke laws and FCA rules in force at the time.
Lloyds Banking Group had previously considered launching a legal challenge against the scheme, as it believed the regulator had failed to comply with court judgments. However, has now changed its decision.
In an emailed statement in April, a Lloyds spokesperson said: “We have carefully considered the FCA motor finance redress scheme. While we remain disappointed in and disagree with its conclusions, we believe that moving forward with the scheme is now the right step for our customers and shareholders.”
An estimated £7.5 billion in total redress (average payout is estimated to be around £829 per eligible deal), marking a major shift towards resolution for millions of consumers who were tied up in unfavourable lending arrangements.
The program covers motor finance agreements taken out between April 6, 2007, and November 1, 2024. The vast majority of these cases involve Discretionary Commission Arrangements (DCAs) – a practice banned by the FCA in 2021.
The agreements allowed brokers and car dealers to inflate loan interest rates, thereby increasing their own commissions. The FCA found that the practice created systematic unfairness, as customers were never informed of the agreement and denied the opportunity to negotiate or access more competitive market rates.
The car finance compensation scheme was launched in March. It has been partially suspended due to legal challenges from lenders but the FCA says it it is planning to fight these.
The case is due to be heard in either December 2026 or February 2027. If the scheme is upheld, and the judgment isn’t appealed, the FCA expect payments under the scheme to begin in 2027.