Lloyds Flags Significant Long-Term Profitability Concern Over FCA Redress Scheme
Lloyds has raised concerns about the long-term costs of the forthcoming redress scheme.
Lloyds has issued a warning over the FCA’s upcoming motor finance redress plans. The bank says the scheme carries a financial cost equal to twenty years of industry profits, signalling the scale of exposure sitting behind the consultation.
The warning comes ahead of the final design of the compensation framework, which the FCA is now shaping into a structured programme covering historic commission-linked lending. Although the scheme is still in consultation, the market has interpreted the direction as settled in principle: lenders expect a mandatory payout mechanism that standardises redress rather than resolving cases individually.
What the FCA Is Proposing
The scheme will apply to regulated car finance agreements dating from 2007 to 2024. These were deals in which the broker or dealer could increase the customer’s interest rate and receive a higher commission as a result, without the customer being told that the pricing reflected a financial incentive.
Who Would Qualify
The consultation indicates eligibility where:
- the finance was regulated (personal use, not corporate fleet)
- the price of credit included a commission uplift tied to the broker’s earnings
- the link between the uplift and the broker incentive was not made clear to the customer
- the agreement was taken out between 6 April 2007 and 1 November 2024
Customers do not need to prove harm individually. If the model used a discretionary uplift in pricing, the harm is assumed.
How the Payout Would Be Calculated
The FCA is considering a formula that returns:
- the portion of interest that was attributable to the incentive mechanism; and
- statutory interest on top of that sum.
Industry lawyers expect the interest component to mirror the formula typically used in consumer credit redress: simple cost of credit at roughly the Bank of England base rate plus 1 percentage point. Early modelling suggests an average compensation of £700 per agreement, although some categories are likely to fall above or below that figure depending on duration, outstanding balance at origination, and pricing differentials used in the dealer channel.
Cost to Lenders
The FCA has signalled a sector-wide exposure in the range of £7bn to £11bn. Lloyds’ reaction indicates that large lenders already accept that the redress will not target edge cases but structural pricing practice. The bank’s reference to twenty years of profitability indicates that the concern lies in duration. This was not an isolated commercial feature but a persistent earnings line.
What Happens Next
The FCA will now gather feedback on the shape of the scheme. Publication of final rules is expected after the consultation period concludes, followed by a structured payout cycle beginning in 2026.
The consultation is framed as a procedural step, yet the industry’s response has treated it as the prelude to a binding scheme. The warnings from lenders reflect a recognition that the pricing architecture itself —rather than administrative oversight —sits at the heart of the exposure.
Anyone who wants a clearer view of their own agreement can run a quick check through our eligibility tool. It uses the same rules the FCA is working with and gives an early sense of whether the deal sits inside the scheme before any documents or paperwork enter the picture.
