Lenders May Offer Early Compensation as Car Finance Mis‑selling Case Awaits Court Decision
The FCA welcomes early settlement offers from lenders, but most claimants will still wait for the outcome of a February court case.
Early settlement offers are emerging as lenders respond to the looming car‑finance mis‑selling litigation.
Regulator’s stance on early payouts
The Financial Conduct Authority (FCA) said it would welcome lenders making settlement offers, provided the offers do not leave customers with a worse deal than under the regulator’s proposed central compensation scheme.
Stephen Braviner Roman, the FCA’s general counsel and co‑lead on the motor‑finance project, explained that “fair settlement offers could result in some people getting money sooner” and that “anyone who wants to wait can, and there’s no obligation to agree to the offer.” He added the FCA will monitor firms making offers and expects clarity on what acceptance means.
Barclays leads with early payments
Barclays confirmed it will start making early compensation offers now, citing the “considerable wait” claimants have already endured. The bank indicated the move could help clear the cost from its balance sheet.
The FCA expects only a minority of claimants to receive such early offers, with the majority still needing to wait for the court’s decision, scheduled for February, and for compensation to be paid later next year.
Scope of the mis‑selling issue
Millions of drivers who took out a car loan between April 2007 and November 2024 are set to receive compensation after loans were mis‑sold. The mis‑selling centred on discretionary commission arrangements (DCAs), where dealers received commissions from lenders based on the interest rate charged to customers, often without informing the borrowers.
Average payouts are projected at about £829 per claimant, covering roughly 12 million car loans – about 37 % of all loans taken in the period.
Financial impact on the industry
Total compensation costs, including administrative expenses, could reach up to £9.1 billion. Some lenders have already set aside millions of pounds to meet these obligations.
While early offers may provide quicker relief for a limited number of affected drivers, the bulk of the compensation will depend on the outcome of the upcoming legal challenge.
How lenders choose to balance early settlements with the pending court ruling will shape the financial recovery for millions of car‑finance customers.
