According to reports, more than 12 million UK drivers are expected to receive a share of an estimated £7.5 billion in redress after customers were overcharged on some car finance agreements. Lloyds had considered challenging the regulator’s approach but confirmed earlier this year that it would instead move forward with the scheme.
The compensation programme centres largely on discretionary commission arrangements, or DCAs, which allowed car dealers and brokers to adjust customers’ interest rates in ways that could increase the commission they received. The FCA banned the practice in 2021.
Payments are not immediate. The compensation scheme has been partially suspended amid legal challenges from lenders, with a court case expected in either December 2026 or February 2027. If the scheme is upheld and the judgment is not appealed, the FCA expects payments to start in 2027.
Why Some Car Finance Customers Could Receive Compensation
The redress programme covers motor finance agreements entered into over a period of more than 17 years, from 6 April 2007 until 1 November 2024. The majority of affected cases involve discretionary commission arrangements.
Under these arrangements, brokers and car dealers could increase the interest rate charged on a loan, which in turn increased the commission they earned from the transaction. According to the Daily Express, customers were not informed about these arrangements and therefore did not have the opportunity to negotiate or seek more competitive market rates.
The report says many lenders failed to disclose important information about the agreements to customers, breaching laws and FCA rules that applied at the time. The regulator found that the way DCAs operated created systematic unfairness for consumers.
An estimated £7.5 billion is expected to be distributed through the redress programme, with the average payment estimated at around £829 for each eligible agreement. More than 12 million UK drivers are expected to receive compensation, representing 37 per cent of agreements made.
The £829 figure is therefore an estimated average rather than a guaranteed payment to every Lloyds customer. Eligibility is tied to affected motor finance agreements covered by the scheme.
Lloyds Drops Plans for a Legal Challenge as Court Case Approaches
Lloyds Banking Group had previously considered bringing a legal challenge against the FCA scheme. According to the Daily Express, the banking group believed that the regulator had failed to comply with court judgments, but it subsequently decided not to pursue a challenge.
In an emailed statement issued in April, a Lloyds spokesperson said the group had “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 spokesperson said.
That decision means Lloyds intends to participate in the redress process and compensate customers covered by the scheme rather than launch its own legal action against it. The wider compensation process remains affected by legal disputes involving lenders. The scheme, which was launched in March, has been partially suspended because of those challenges, while the FCA has said that it plans to contest them.
The case is expected to be heard either in December 2026 or February 2027. If the redress scheme survives the legal challenge and the resulting judgment is not appealed, the FCA expects compensation payments to eligible customers to begin during 2027.
