Britain’s financial regulator is considering modifications to a proposed compensation scheme for millions of mis-sold car loans following strong industry pushback and more than 1,000 public responses. The Financial Conduct Authority (FCA) has not yet finalized its decision but expects to publish the final rules in late March if approved.
The scheme targets cases where motor finance firms and lenders failed to disclose commissions paid to car dealers, which may have resulted in higher interest rates for borrowers. The FCA stated, “If we proceed with a scheme, we are likely to make several changes.”
Implementation Timeline
Under the proposed framework, lenders would have three months to implement the scheme, with up to five months allocated for older motor finance agreements. Customers would then be notified within three months of the scheme’s conclusion. The FCA added that the streamlined process could allow millions of people to receive compensation in 2026.
Scale and Financial Impact
The FCA first outlined the scheme in October, estimating that around 14 million motor finance deals were unfairly sold. Average payouts could reach approximately £700 per customer, with total costs to lenders, including implementation, potentially reaching £11 billion.
Proposed revisions would remove the opt-out requirement for complaints submitted before the scheme and allow lenders to contact customers through multiple channels, not just recorded delivery. The extended timeline for older agreements reflects the “scale and complexity of the scheme and in response to feedback,” according to the FCA.
Industry Response
Major lenders, including Santander and Lloyds Banking Group, have voiced concerns about the scheme, setting aside substantial funds to cover anticipated costs. Santander CEO Mike Regnier called for government intervention, warning that the plan could damage the car finance market, the wider motor sector, and potentially result in job cuts.
The FCA confirmed that if the scheme proceeds, final rules will be published in late March. “The timing of publication will be outside market hours, and we will confirm the date in advance,” the regulator said.
