Lloyds Banking Group had previously weighed up a legal challenge to the Financial Conduct Authority's (FCA) motor finance redress scheme, arguing that the regulator had failed to comply with court judgments. But it changed course earlier this year, saying that while it disagreed with the findings, it believed moving forward was the right step.
The payouts relate to car finance agreements taken out between 6 April 2007 and 1 November 2024, the majority of which involved discretionary commission arrangements (DCAs). Under such arrangements, dealers were able to increase interest rates to earn more commission from a sale, and many lenders did not properly disclose important information to customers about their agreements, breaking laws and FCA rules in force at the time.
Average payout of £829
More than 12 million drivers, representing 37% of agreements made, are set to receive a share of an estimated £7.5 billion total compensation pot. For eligible Lloyds customers, that works out to an average payout of £829.
The FCA launched the car finance compensation scheme in March. It has been partially suspended because of legal challenges from lenders, but the regulator is expected to fight those challenges, with the case due to be heard either in December or during 2027.
'The right step'
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."
The FCA found the practice unfair because customers were not informed of the agreement, had no opportunity to negotiate, and could not access more competitive market rates. Discretionary commission arrangements were banned by the FCA in 2021.
If the redress scheme is upheld and the judgment is not appealed, the FCA expects payments under the scheme to begin in 2027.
