Banking conglomerate Lloyds reviews motor finance offerings post U.K. Supreme Court judgment.
The Financial Conduct Authority (FCA) has announced its intention to launch a consultation on an industry-wide redress scheme for motor finance customers who were treated unfairly due to undisclosed or improperly disclosed commission payments to car dealers. This move comes after a Supreme Court ruling that acknowledged that certain commission payment practices may create "unfair relationships" under UK law, particularly where disclosures were inadequate.
The proposed redress scheme, expected by early October, will focus on discretionary commission arrangements but may also include some non-discretionary arrangements. It is expected to cover agreements dating back to 2007, addressing historic non-compliance with disclosure rules. Consumers will be able to participate without needing lawyers or claims management companies, simplifying access and avoiding costs that reduce compensation.
Compensation could involve repayment of commission amounts or other remedies. The FCA plans to publish the consultation in early October with a six-week consultation window, aiming for the scheme to be operational and paying compensation during 2026.
Regarding the potential financial impact on major motor finance lenders, including Lloyds Banking Group, the FCA has estimated the total cost to industry at between £9 billion and £18 billion, with midpoint estimates more plausible. Many claimants are expected to receive sums under £950 per agreement. While these costs will be borne industry-wide, major motor finance lenders could face significant charges depending on their historical commission arrangements and the extent of affected agreements.
The FCA's consultation will also consider additional factors, such as whether the scheme will be opt-in or opt-out for consumers, defining which commission practices are considered unfair, especially focused on non-disclosure of commission nature and size, potential thresholds (de minimis) for eligibility to compensation, and balancing consumer redress with preserving access to affordable motor finance loans.
In summary, the FCA's forthcoming consultation aims to establish a clear, fair, and efficient compensation framework for motor finance customers harmed by undisclosed commission payments, with industry-wide financial implications, including for Lloyds Banking Group, expected to materialize during 2026.
[1] Financial Conduct Authority. (2025). FCA announces consultation on redress scheme for motor finance customers. [online] Available at: https://www.fca.org.uk/news/press-releases/fca-announces-consultation-redress-scheme-motor-finance-customers
[2] The Guardian. (2025). Supreme Court rules car dealers do not owe customers fiduciary duties. [online] Available at: https://www.theguardian.com/business/2025/aug/01/supreme-court-rules-car-dealers-do-not-owe-customers-fiduciary-duties
[3] Lloyds Banking Group. (2025). Lloyds Banking Group announces initial assessment following Supreme Court judgment. [online] Available at: https://www.lloydsbankinggroup.com/media/news/2025/august/lloyds-banking-group-announces-initial-assessment-following-supreme-court-judgment
[4] The Telegraph. (2025). Car dealers do not owe customers fiduciary duties, Supreme Court rules. [online] Available at: https://www.telegraph.co.uk/business/2025/08/01/car-dealers-do-not-owe-customers-fiduciary-duties-supreme-court/
[5] The Times. (2025). FCA to consult on redress scheme for motor finance customers. [online] Available at: https://www.thetimes.co.uk/article/fca-to-consult-on-redress-scheme-for-motor-finance-customers-pjh6n9w7r
- The Financial Conduct Authority's (FCA) upcoming consultation on a redress scheme for motor finance customers, estimated to cost the industry between £9 billion and £18 billion, will focus on banking and insurance sectors, particularly major lenders like Lloyds Banking Group, due to their involvement in motor finance business.
- The proposed redress scheme encompasses business arrangements dating back to 2007, ultimately aimed at addressing finance-related issues stemming from undisclosed or improper commission payments, predominantly in the industry of motor finance.
