There’s been a lot of talk in the media about the scale of the car finance scandal in the UK, with some people saying the fallout could be on the same level as the PPI mess. But how many people have actually been affected, and what does this mean for the industry? A recent poll revealed some eye-opening numbers that show just how big the problem might be. According to the survey, 45% of adults (roughly 4,000 people surveyed) believe they’re owed compensation for mis-sold car finance agreements taken between 2007 and 2021. That’s around 23 million adults.
Who Are They?
They span a wide cross-section of the public. These are everyday drivers who took out car finance through dealerships, brokers, or showrooms between 2007 and 2021. Many were sold Personal Contract Purchase (PCP) or Hire Purchase (HP) deals without ever being told that the interest rate they were offered may have been inflated to boost the dealer’s commission. They include teachers, NHS workers, delivery drivers, and small business owners. In short, they include anyone who needed a vehicle and trusted that the finance deal they were given was fair. In most cases, they had no idea that a hidden commission structure might have been influencing the rate they paid. The majority were never told that the person arranging their finance had the power to set a higher rate in return for a bigger payout from the lender. Some have already paid off their loans, others are still making monthly repayments. Many only learned about the issue when it hit the headlines in early 2024. Now, with the scale of the scandal becoming clearer, millions of people are starting to question whether their finance agreements were transparent and whether they might be owed money back.
Billions at Stake for Lenders
Major lenders, including Santander UK, Barclays, Lloyds and Close Brothers, now find themselves under mounting pressure. So far, the provisions set aside by these lenders suggest they’re bracing for impact, but not necessarily for the worst-case scenario. Lloyds has earmarked £1.2 billion, Santander £295 million, Barclays £90 million and Close Brothers £165 million. In total, that’s about £1.7 billion, only a fraction of what may be required if the Financial Conduct Authority (FCA) orders a full-scale redress scheme.
Forecasts Vary Widely
Estimates on the total cost of compensation vary depending on how courts interpret the law. RBC Capital Markets suggests Lloyds may ultimately owe £2.0 billion, Santander £850 million, Barclays £250 million and Close Brothers £110 million. But Moody’s has warned that if the Supreme Court rules that all undisclosed DCAs amount to mis-selling, the true cost could exceed £30 billion. The FCA, keen to avoid another financial shock, has said any compensation framework must not compromise financial stability or future access to motor finance. Still, while large institutions like Lloyds may be able to weather substantial payouts, smaller lenders could struggle. Some, including Close Brothers, are reportedly weighing up restructures or shrinking their motor finance operations entirely. Santander has already taken a more radical approach. The bank is considering separating its car finance division, based in Redhill, from the rest of its UK business. The aim would be to ringfence risk and streamline its wider operations. A formal split would require regulatory approval, but could make the bank’s UK arm more appealing to future investors or buyers.
What’s Next
Looking ahead, the biggest milestone on the horizon is the Supreme Court’s judgment, expected in July 2025. That decision will be pivotal: if the Court confirms that undisclosed discretionary commission arrangements (DCAs) amounted to mis‑selling, it will trigger the FCA’s formal redress process for millions of affected motorists. The FCA has said it will confirm, within six weeks after the decision, whether a compensation scheme will go ahead, and publish a consultation setting out its proposed approach. Given the groundwork already laid through engagement with
stakeholders, this consultation is expected to be relatively short, with final rules likely to follow by the end of 2025.
In the meantime, the FCA has paused the processing of new PCP claims until at least 4 December 2025. This temporary hold is designed to ensure that any compensation process is implemented fairly and consistently across the board. Should the scheme proceed, it is anticipated that payments to affected consumers could begin in early 2026. The FCA has indicated that any redress framework will be built around principles such as fairness, clarity, and proportionality, aiming to deliver meaningful outcomes for consumers without destabilising the financial services sector. The next six months will be critical in shaping the outcome of what could become one of the most significant consumer redress schemes in recent UK financial history.