The cost of compensating UK consumers for mis-sold car loans could be far higher than estimated. Industry sources warn that the final bill may exceed regulators’ projections by billions. This casts serious doubt on plans to begin payouts in 2026. The scandal is poised to become one of Britain’s most expensive financial mis-selling cases.
The Financial Conduct Authority (FCA) published its compensation proposal in October 2025. It estimated the total cost to lenders at approximately £11 billion ($14.8 billion). This prompted major banks like Lloyds and Barclays to increase their financial provisions. However, industry insiders now dispute the regulator’s calculations.
Sources cite the FCA’s broad definition of an unfair loan and a low bar for excessive commissions. These factors have significantly inflated the potential industry bill. Two sources estimate the true cost could be closer to £18- £ 20 billion. The figures remain private due to the sensitivity of ongoing negotiations.
Compensating British consumers for mis-sold car loans could cost billions of pounds more than regulators have estimated, industry sources say, throwing into doubt plans for payouts in 2026 to resolve one of Britain's most expensive mis-selling scandals https://t.co/v8MEWXEFTZ
— Reuters (@Reuters) December 12, 2025Unless the FCA recasts its proposals, it faces a costly and time-consuming legal challenge. Four industry figures confirmed this likelihood while speaking anonymously. Lenders are expected to raise formal objections in their responses to the FCA’s consultation, which closes on Friday.
The dispute creates major uncertainty for lenders and their final financial provisions. The compensation scheme is also a critical test for the FCA. Britain’s Labour government pressures the regulator to support economic growth by easing burdens on the financial services sector.
An FCA spokesperson stated the regulator has “engaged extensively” through the consultation. Feedback will help refine proposals to ensure the scheme is “fair and robust.” The watchdog aims to finalise plans by the end of March 2026 and begin payouts next year.
The £11 billion plan covers redress and costs for loans issued between 17 years ago and 2024. It involves lenders like Lloyds, Barclays, BMW, and Volkswagen. The FCA targets inadequately disclosed commissions paid to car dealerships, which it says incentivise brokers to raise consumer loan rates.
The industry argues the proposals are unreasonable and inconsistent with a recent Supreme Court judgment. Key disputes include the definition of “excessive commissions” and labelling all “tied relationships” as unfair. Some lenders are now taking their case directly to the UK government, hoping for intervention.
Adrian Dally of the Finance and Leasing Association called for a quick resolution. He stressed any credible scheme must “only compensate those customers who have suffered loss.” The finance ministry urged stakeholders to participate in consultations to reach a resolution that provides certainty for all.
