UK Faces Growing Backlash Over £4bn Motor Finance; Industry Urged to Withdraw Support from Lenders

Monday, November 03, 2025 – 6:00 PM

Updated: Monday, November 03, 2025 – 5:24 PM

Motor Finance redress Scheme Faces Mounting Criticism

Motor finance lenders and consumers have voiced concerns regarding the Financial Conduct Authority’s approach. (Image: PA)

London, United kingdom – The Financial Conduct Authority is facing renewed scrutiny over its proposed motor finance
redress scheme, as a new report highlights a significant disparity between potential payouts and the overall cost to the industry.
The scheme, intended to compensate consumers who were potentially overcharged for car finance agreements, has sparked controversy, drawing fire from both industry leaders and consumer advocates.

Parliamentary Group Alleges £4.4 Billion Gap in FCA Scheme

A recently published report by the all-Party Parliamentary Group (APPG) on Fair banking alleges that the FCA’s proposed redress scheme contains a “£4.4 billion gap,” suggesting the regulator may be underestimating the total compensation required.
The APPG accused the FCA of being unduly influenced by the financial interests of lending institutions, a claim the regulator vehemently denies.

The crux of the dispute revolves around the methodology for calculating compensation, specifically the interest rate applied to settlements.
Critics argue that the proposed 2.09% interest rate is too low, while lenders contend that a higher rate could lead to unsustainable financial burdens.

Industry Backlash and Rising Provisions

Several major banks have already begun to increase their provisions to cover potential liabilities stemming from the scheme.Lloyds Banking Group recently set aside £2 billion, while Barclays has allocated approximately £325 million.
Santander UK has voiced concerns so significant that its Chief Executive, Mike Regnier, has publicly urged the government to intervene, fearing detrimental consequences for the automotive market and broader economy.

“If the government does not intervene, the unintended consequences for the car finance market, the supply of credit, and the resulting negative impact on the automotive industry and its supply chain could significantly impact jobs, growth, and the broader UK economy,” stated Regnier.

Analysts at RBC Capital Markets have also cautioned that the final redress scheme could face legal challenges,particularly concerning the FCA’s definition of what constitutes an unfair commission arrangement.

Supreme Court Ruling Adds Complexity

The situation is further elaborate by a recent Supreme Court decision in August, which, while largely upholding existing regulations, affirmed that excessive commissions on car finance agreements could be deemed unfair.
This ruling reinforces the potential for widespread claims and underscores the need for a clear and equitable resolution.

According to financial experts, the total cost of the scheme is currently estimated at around £11 billion, a figure lower than initial projections that reached as high as £18 billion.

Read more

Lords grill FCA on ‘deep lack of clarity’ in motor finance redress

The FCA maintains that its objective is to ensure fair compensation for affected consumers while minimizing disruption to the financial market.A spokesperson for the regulator stated, “we have proposed a scheme to fairly compensate motor finance customers in a timely and efficient way. We recognize that there will be a wide range of views on the scheme and not everyone will get everything they would like.But we want to work together on the best possible scheme and draw a line under this issue quickly. That certainty is vital, so a trusted motor finance market can continue to serve millions of families every year.”

Understanding Motor Finance and Redress Schemes

Motor finance, also known as car finance, allows consumers to purchase vehicles on credit. Common types of motor finance include Personal Contract Purchase (PCP) and Hire Purchase (HP).
Redress schemes are established when widespread misconduct is identified within a financial sector, aiming to compensate consumers who have been unfairly treated.

Did you know? Commission arrangements in motor finance sometimes allowed dealers to increase interest rates on loans, effectively earning a commission at the consumer’s expense.

Pro tip: When taking out motor finance, always compare offers from multiple lenders and carefully review the terms and conditions before signing an agreement.

Frequently Asked Questions About Motor Finance Redress

1. What is the motor finance redress scheme?

   it’s a plan by the FCA to compensate customers who may have been overcharged on their car finance agreements due to discretionary commission allowances given to car dealers.

2. Who is eligible for compensation?

   Customers who took out car finance agreements between April 2007 and January 2021 might be eligible, depending on the specific details of their agreement.

3. How much compensation could I receive?

   The amount varies depending on the individual circumstances of each case, including the size of the commission paid and the interest rate charged.

4. What is the FCA’s role in this?

   The FCA is regulating the redress scheme and is responsible for overseeing the compensation process to ensure fairness and openness.

5. What is the current timeline for the scheme?

   The consultation period closes on november 18, 2025, wiht a full outline of the redress scheme expected in early 2026.

What are your thoughts on the FCA’s proposed redress scheme? Do you think it fairly addresses the concerns of both consumers and lenders? Share your comments below.

Is there a deadline to submit a claim for motor finance mis-selling compensation?

The Scale of the Motor Finance Controversy

The UK motor finance sector is currently embroiled in a notable scandal, facing a potential £4bn bill due to widespread mis-selling of commission arrangements. This stems from a review conducted by the Financial Conduct Authority (FCA) which found that manny lenders allowed dealerships to inflate interest rates, earning higher commissions at the expense of consumers. the fallout is rapidly escalating, with increasing pressure on lenders and a growing wave of consumer complaints. Key terms driving searches include “motor finance PPI,” “car finance compensation,” and “FCA motor finance review.”

How Did This Happen? Discretionary Commission Models

For years, a common practice in car finance was the use of discretionary commission models. these allowed dealerships significant leeway in setting interest rates on Personal Contract Purchase (PCP) and Hire Purchase (HP) agreements.

* The Problem: Dealerships weren’t incentivized to offer the lowest possible interest rate, but rather to maximize their commission. This often resulted in customers paying substantially more for their vehicles than they should have.

* Dual Finance/Insurance Roles: Many dealerships acted as both finance brokers and insurance sellers, creating further opportunities for inflated costs and hidden commissions.

* Lack of Transparency: Consumers where frequently enough unaware of the commission structure and the extent to which it impacted their monthly payments.

The FCA’s Intervention and the £4bn Estimate

The FCA’s review, initiated in early 2024, uncovered systemic failings in the motor finance market. The regulator found that a significant number of customers were likely to have been unfairly charged higher interest rates.

* Redress Scheme: The FCA is now pushing for a widespread redress scheme to compensate affected consumers.

* £4bn Liability: Industry estimates suggest the total cost of compensation could reach £4 billion, a figure that has sent shockwaves through the sector.

* Deadline for Submissions: The FCA set a deadline of November 29th, 2024, for firms to submit data relating to potential mis-selling.

Industry Response and Calls for Support Withdrawal

The scale of the potential liability has prompted calls for financial institutions to reconsider their support for lenders involved in the mis-selling practices.

* Investor Concerns: Investors are increasingly wary of the risks associated with motor finance companies. Share prices of major lenders have already been impacted.

* Pressure on Banks: There’s growing pressure on banks and other financial institutions to withdraw funding from lenders who are deemed to have engaged in unfair practices.

* Lloyds Banking Group & Black Horse: Lloyds Banking Group, parent company of Black Horse, a major motor finance provider, is facing significant scrutiny and potential liabilities.

* Santander Consumer Finance: Santander Consumer Finance is another key player facing substantial potential costs.

What Does This Mean for Consumers?

Consumers who took out car finance agreements between January 2010 and January 2021 may be eligible for compensation.

* Checking Your Eligibility: Several online tools and resources are available to help consumers determine if they were affected by the mis-selling practices. (Note: Archyde.com will provide a dedicated eligibility checker soon).

* making a Complaint: consumers can submit complaints directly to their lender. The Financial ombudsman Service (FOS) can also investigate complaints if lenders fail to resolve them satisfactorily.

* No Upfront Fees: Be wary of claims management companies charging upfront fees for assistance with compensation claims. The FCA advises against paying upfront fees.

* Time Limit: While the FCA is establishing a redress scheme, consumers should still be proactive in checking their eligibility and submitting complaints.

The Impact on the Car Market

The motor finance scandal is expected to have a ripple effect on the UK car market.

* Reduced Lending: Lenders are likely to tighten their lending criteria, making it more difficult for consumers to secure car finance.

* Falling Car Sales: reduced access to finance could lead to a decline in car sales, particularly in the used car market.

* Shift to Choice Finance: Consumers may explore alternative financing options, such as personal loans or cash purchases.

* Increased Scrutiny of Finance Products: The scandal is likely to lead to increased scrutiny of all financial products offered by dealerships.

Key Search Terms & Related Queries

* Car finance mis-selling

* Motor finance compensation claim

* FCA car finance review

* PCP compensation

* HP finance scandal

* Black Horse finance complaints

* Santander car finance review

* Car finance affordability checks

* Discretionary commission model explained

* Financial Ombudsman Service car finance

Real-World Example: The PPI Scandal Parallel

The current situation bears striking similarities to the Payment Protection Insurance (PPI) scandal, which cost UK banks billions of pounds in compensation. Like PPI, the motor finance mis-selling practices were widespread and affected a large number of consumers. The FCA’s approach to redress is also mirroring the PPI model, with a focus on establishing a comprehensive compensation scheme. This ancient parallel is driving significant media coverage and public awareness.