Santander has agreed to pay compensation for its portion of unfair motor finance deals, the bank announced on Saturday. Payouts are due on about 12.1 million mis-sold deals from various lenders at an average of £829 each, the Financial Conduct Authority (FCA) said in March as it unveiled plans for its redress scheme.
Scope of the Redress Scheme
The FCA expects the total amount of redress paid under its scheme to be about £7.5 billion, based on approximately 75% of eligible consumers making a claim. It anticipates that millions of claims will be paid out this year, with the vast majority settled by the end of 2027. A spokesperson for Santander stated: “We have decided not to challenge the schemes and will now focus on their implementation.”
Eligibility and Payments
Lenders can start making payments immediately, and individuals who have already lodged complaints are likely to receive their compensation first, the FCA said at the end of last month. Most of the car finance deals covered involve so-called discretionary commission arrangements (DCAs), which were banned in 2021. These arrangements allowed brokers, including car dealers, to increase interest rates on car loans to earn higher commissions. The FCA determined that this practice was unfair because customers were not properly informed about the arrangement and therefore lacked the opportunity to negotiate or seek a better deal.
People who were not told about a deal involving high commission or a contractual tie to a firm are also eligible for compensation. The programme covers agreements taken out between April 6, 2007, and November 1, 2024.
Santander's Decision
In reaching its payout decision, Santander added: “This was a finely balanced judgment reflecting our primary desire to bring greater certainty to our customers, shareholders and the wider motor finance sector, factors which outweighed our disagreement with elements of the proposed schemes. We will continue to work constructively with regulators and policymakers to seek to improve the competitiveness of the UK in the interests of all our customers, taxpayers and investors.”
Revisions to the Scheme
The FCA made changes to the long-awaited redress scheme’s format after receiving more than 1,000 responses to a consultation, including from motor finance lenders, consumer groups, carmakers and industry bodies. The initial proposals drew criticism from both sides. Lenders and car finance providers raised concerns that the level of redress was too high and did not accurately reflect what customers lost, while consumer groups and some MPs argued that motorists would be short-changed under the plans. The feedback has resulted in the FCA tightening the eligibility criteria so that only those who were treated unfairly will receive compensation. It expects around a third of cases to be capped to ensure consumers will not be paid too much.
