UK watchdog tells banks to stop haggling over car finance redress
FCA chief demands swift resolution to mis-sold motor finance scandal in Britain
Britain’s top financial regulator has issued a no-nonsense warning to banks over delays in compensating drivers mis-sold car finance. The Financial Conduct Authority (FCA) is urging lenders to stop negotiating and start fixing.
Nikhil Rathi, the FCA’s chief executive, made his stance clear during an interview with the Financial Times. He dismissed complaints from lenders about the difficulty of calculating redress for deals going back nearly two decades.
“Now is not the time to haggle with us but to help put things right for consumers,” Rathi said.
“I don’t think it is completely impractical, as I heard one of the trade associations say.”
The FCA is working on a redress scheme that could cost banks between £9bn and £18bn. The payments would go to customers who were treated unfairly through car financing deals, many of which involved hidden commissions paid to motor dealers.
Those commissions often resulted in customers paying higher interest rates without being told why.
Rathi was firm on the need for accountability, despite the scale of the challenge. “We know it is difficult. But you can’t say the law has been broken and it is too difficult to even try to put things right,” he said.
This issue isn’t new. For years, banks and lenders paid commissions to dealerships as part of vehicle sales, incentivising dealers to hike up interest rates. Customers, often unaware of these commissions, were left paying more. The courts and regulators now agree it was unfair.
Shares in some of the UK’s biggest car finance providers, including Lloyds Banking Group and Close Brothers, jumped after a recent Supreme Court ruling limited their legal exposure.
The ruling clarified that car dealers didn’t owe a fiduciary duty to borrowers, but crucially, it upheld claims involving hidden commissions. In one highlighted case, a commission made up 55% of a customer’s total interest costs.
That decision triggered the FCA’s fresh push for redress, which could begin payouts in 2026. But some lenders are questioning the scheme’s practicality, especially for loans going back as far as 2007.
Stephen Haddrill, chief of the Finance and Leasing Association, voiced those concerns on Monday.
“We have concerns about whether it is possible to have a fair redress scheme that goes back to 2007, when firms have not been required to hold such dated information, and the evidence base will be patchy at best.”
Despite this, the FCA insists cooperation is the only path forward. Rathi believes dragging it through the courts will only hurt consumers further and delay justice.
“If industry works with us then we can get this moving quickly,” he said.
“If however … people want to continue to litigate this and have cases going through the courts for many, many more years, then of course it is going to take longer. But we hope that is not where we are going to be.”
This could be a watershed moment. Rathi, reappointed by Chancellor Rachel Reeves for another five years, said he is determined to make this the last major banking redress scandal in the UK.
“This is the only significant redress issue we have on our radar so if we can get this sorted speedily and expeditiously, we hope that can give everybody confidence for the future,” he said.
Reeves has echoed similar goals, pushing for an end to mass compensation cases and a reform of the country’s financial complaints process. The redress scheme fits neatly within that mission.
The FCA banned discretionary commission models in 2021, just after Rathi took the helm. But he noted that undisclosed commissions likely breached consumer protection rules even before the ban.
One key decision remains: how to deliver compensation. Should it be automatic for all eligible consumers unless they opt out? Or should people be required to apply?
Rathi admits both options have their pros and cons. “An opt-out scheme might take longer because firms have to go and look for all the addresses and go and track down customers who may have moved,” he said.
“An opt-in scheme may be quicker, but will be less comprehensive.” The estimated average payout is less than £950 per agreement. Modest, perhaps, but significant for millions of affected drivers.
Thousands of drivers could now be eligible for payouts worth up to £950 per agreement.
Consumer finance expert Martin Lewis has highlighted how many affected customers can check if they qualify and what steps they need to take. Martin Lewis explains who can claim car finance refunds and how the process works.
The FCA wants movement. Fast. The ball is now in the lenders’ court. If they dig in, this could drag on for years. But if they step up, this saga might finally find a conclusion.
