Major high street bank to pay compensation to thousands of customers over mis-sold car loans

Thousands of high street bank customers are set to receive significant compensation payments following widespread mis-selling of car finance loans.

The payouts will come from around 12.1 million mis-selling deals from a range of lenders, costing an average of £829 each, the financial watchdog said in a statement when announcing plans for the compensation scheme in March.

The Financial Conduct Authority (FCA) expects the total amount of compensation paid under its scheme to be around £7.5bn, based on around 75 per cent of eligible consumers making claims.

He expects millions of claims will be paid this year and the vast majority will be resolved by the end of 2027.

A spokesman for Santander said on Saturday: ‘We have decided not to object to the plans and will now focus on their implementation.’

Lenders can start making payments immediately and people who have already made complaints will receive the first payment, the FCA said in a statement at the end of last month.

Most auto finance deals covered include discretionary commission arrangements (DCAs), which are banned in 2021.

This refers to arrangements where brokers, including car dealers, can increase interest rates on auto loans to get more commissions.

The FCA said this led to injustice for customers who were not properly informed about the regulation and therefore did not have the opportunity to negotiate or find themselves a better deal.

Individuals who were not informed of a high-commission deal or a contractual bond with a firm are also entitled to compensation.

The program covers agreements made between April 6, 2007 and November 1, 2024.

In reaching the payment decision, Santander added: ‘This was a very well-balanced decision, reflecting our fundamental desire to bring greater certainty to our customers, shareholders and the wider automotive finance industry, factors that outweigh our disagreement with elements of the proposed plans.

‘We will continue to work constructively with regulators and policymakers to improve the UK’s competitiveness in the interests of all our customers, taxpayers and investors.’

The FCA has made changes to the format of its long-awaited compensation scheme after receiving more than 1,000 responses to a consultation, including from car finance lenders, consumer groups, car manufacturers and industry bodies.

The initial proposals drew criticism from both sides; Lenders and car finance providers have expressed concern that the level of compensation is too high and does not fully reflect what customers have lost, while consumer groups and some MPs have argued that drivers would be short-changed under the plans.

Feedback resulted in tightening of eligibility criteria; thus, under the FCA, only those who have been unfairly treated will receive compensation.

About a third of cases are expected to be capped to ensure consumers are not charged too much.