Lloyds has confirmed it will not launch a legal challenge against the Financial Conduct Authority's (FCA) motor finance redress scheme and will take part in compensating affected customers who were allegedly mis-sold car finance.
Over 12 million UK drivers, representing 37% of agreements made, will receive a portion of £7.5 billion after being overcharged for car finance between 2007 and 2024. The average payout is estimated to be around £829 per eligible deal.
Why customers were overcharged
The overcharging relates to "discretionary commission arrangements" (DCAs), where dealers were able to increase interest rates to earn more commission from a sale. Many lenders did not properly disclose important information to customers about their agreements, which broke laws and FCA rules in force at the time.
The FCA found the practice created systematic unfairness, as customers were never informed of the arrangement and were denied the opportunity to negotiate or access more competitive market rates. DCAs were banned by the FCA in 2021.
Lloyds changes position
Lloyds Banking Group had previously considered launching a legal challenge against the scheme, believing the regulator had failed to comply with court judgments. However, it 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."
Timeline for payments
The scheme covers motor finance agreements taken out between April 6, 2007, and November 1, 2024. The vast majority of cases involve DCAs.
Launched in March, the scheme has been partially suspended due to legal challenges from lenders, but the FCA says it plans 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 is not appealed, the FCA expects payments under the scheme to begin in 2027.
