London, 14 October 2025 — Lloyds Banking Group has increased its financial provision for the UK’s car finance compensation scheme to £1.95 billion (€2 billion), following a reassessment of the number of historical motor finance agreements potentially eligible for redress. The move comes in response to the Financial Conduct Authority’s (FCA) proposed redress framework, which targets mis-selling practices involving discretionary commission arrangements (DCAs).
Scope of the Compensation Scheme
The FCA estimates that up to 14.2 million car finance deals agreed between April 2007 and November 2024 may have involved unfair commission structures. Under DCAs, brokers and car dealers were allowed to adjust interest rates to increase their commission, often without transparent disclosure to consumers.
Lloyds, which owns Black Horse, the UK’s largest motor finance lender, said the revised provision reflects the “increased likelihood of a higher number of historical cases” qualifying for compensation, and a higher level of redress per case than previously anticipated.
Lloyds Challenges FCA Methodology
Despite committing to fair compensation, Lloyds has criticized the FCA’s proposed methodology, arguing that it “does not reflect the actual loss to the customer” and may result in overcompensation, with some customers potentially receiving more than 100% of the commission paid.
The bank stated: “The group remains committed to ensuring customers receive appropriate redress where they suffered loss; however, the proposed methodology does not meet the objective of proportionate and reasonable compensation.”
Lloyds plans to submit formal representations to the FCA during the consultation period.
Industry-Wide Impact
The FCA’s scheme could cost UK lenders up to £11 billion in total, with other major banks including Santander, Barclays, and Close Brothers also expected to increase their provisions. Carmaker BMW has reportedly sought a meeting with the UK Treasury to discuss its concerns over the scheme’s scope and fairness.
Outlook
The redress scheme follows a Supreme Court ruling in August 2025, which found that certain commission practices were unfair. While the final structure of the compensation framework is still under consultation, Lloyds’ revised estimate signals the potential scale of financial exposure across the sector.
The bank’s proactive adjustment underscores the seriousness of the issue and the broader implications for consumer trust, regulatory compliance, and financial stability in the UK’s motor finance market.
Lloyds Bank, Cardiff Hq Picture by Jaggery
Sources: The Independent; Car Dealer Magazine; This is Money; Sky News.
