Motor Finance Compensation: How Much Have Lenders Set Aside So Far?
The motor finance industry is facing compensation costs of £billions. We summarise the amounts lenders have raised so far to cover potential payouts.
The mis-sold motor finance saga has been making headlines lately, and it’s turning into a costly affair for UK lenders.
You might have heard whispers—or perhaps loud shouts—about lenders setting aside hefty sums for potential compensation payouts.
But just how deep into their pockets are these finance giants digging?
Before answering this question, it is important to clarify what the motor finance scandal is.
What You Need to Know
The scandal revolves around the widespread mis-selling of car finance agreements, mainly Personal Contract Purchase (PCP) and Hire Purchase (HP). Dealers often failed to disclose commission arrangements they had with lenders, meaning customers unknowingly paid inflated rates.
This scandal has become a significant issue due to heightened regulatory scrutiny, particularly from the Financial Conduct Authority (FCA). The FCA is actively investigating and enforcing transparency standards, compelling lenders to set aside substantial funds to compensate affected consumers.
The controversy has major implications for both the finance industry, which is facing heavy financial and reputational losses, and consumers, many of whom were overcharged and could now be entitled to PCP finance compensation.
Big Numbers, Big Names
So, how much are we talking about exactly?
Lloyds Banking Group recently made jaws drop when they tripled their compensation fund, setting aside a massive £1.2 billion. Yes, billion with a ‘b’. This huge increase means Lloyds’ profits took a significant hit, dropping from £7.5 billion to £5.97 billion in just a year.
Santander isn’t far behind. They’re bracing themselves too, earmarking £295 million to handle claims from customers who might have been overcharged due to non-transparent commission arrangements. Santander’s provision reflects its anticipation of compensation payouts, significantly affecting its profits, which dropped nearly 75% in the third quarter. In April 2025, sources revealed to Bloomberg that the company was considering splitting the motor finance business from the rest of its UK operations.
Close Brothers, a prominent UK motor finance provider, has proactively set aside £165 million to address potential costs associated with the situation. The company has also cancelled its dividend and announced plans to raise £400 million to bolster its balance sheet. In simpler terms, they’re holding onto their cash and raising extra funds to make sure they remain financially stable during a challenging period. Additionally, Close Brothers sold its asset management division for up to £200 million to further enhance its capital reserves.
Barclays has set aside £90 million to address potential claims. This provision was disclosed in its 2024 annual results. The bank, which exited the motor finance market in 2019, acknowledged that the ultimate financial impact could differ materially from the amount provided, given the significant uncertainty surrounding these matters.
Bank of Ireland, which provides car finance to UK consumers through its Northridge Finance division, has put aside €172m (£142m) to cover potential compensation costs. The announcement came with the bank’s annual results, where they announced a pre-tax profit of €1.86bn (£1.5bn) for 2024, down by 4% from the previous year. The bank confirmed they “expect further clarity on this matter during 2025.”
Ford Credit Europe (FCE) has put aside £61 million for potential costs through its banking division, FCE Bank. The lender described the provision as an ‘estimated economic outflow’. Alongside the announcement, Ford also said there is “significant uncertainty as to the extent of customer loss and the terms of any potential redress scheme.”
What’s Next
Here’s a timeline of anticipated events:
April 2025: Supreme Court Appeal
The Supreme Court has agreed to hear an appeal. This hearing, expected in April 2025, could have profound implications for the industry, potentially influencing the Financial Conduct Authority’s (FCA) ongoing investigations.
May 2025: FCA Investigation Report
The FCA launched an investigation into Discretionary Commission Arrangements (DCAs) in January 2024, initially aiming to conclude by September 2024. However, due to delays, the report is now anticipated in May 2025.
December 2025: Deadline for Firms’ Responses
This extension applies to all commission-related complaints, not just those involving DCAs, allowing firms additional time to address the increased volume of claims.
Consumers: Could You Get a Slice of the Pie?
If you’ve ever suspected your car finance deal wasn’t quite as transparent as it should have been, now might be the perfect time to check.
1. Check Your Agreement
Look through your PCP or HP finance documents carefully. Pay close attention to interest rates, repayment terms, and any mentions (or omissions!) of commission payments to dealers.
2. Seek Professional Advice
Talk to a solicitor or claims specialist who understands motor finance claims. They’ll help confirm if your agreement was mis-sold and guide you through the claims process.
3. File a Complaint
Submit a formal complaint to the lender or finance provider involved. Clearly explain why you believe the agreement was mis-sold. Keep copies of all correspondence.
4. Escalate If Necessary
If you’re not satisfied with the lender’s response, you can escalate your complaint to the Financial Ombudsman Service (FOS). The FCA has given lenders until December 2025 to address these complaints, but it’s best to start sooner rather than later.
Do It Now
Quickly discover if your car finance agreement qualifies for a claim using our straightforward eligibility tool. It’s the easiest way to see if you’re owed compensation—just enter your details and get instant clarity on your next steps.
Don’t wait—find out where you stand!
