By: Deniz Oktay
On October 7, 2025, the U.K. Financial Conduct Authority (“FCA”) announced one of the largest consumer-finance compensation schemes in the regulatory agency’s history (“Car Loan Redress Scheme”).[1] The agency confirmed that U.K. lenders, including Lloyds Banking Group, Barclays, and others, must compensate consumers for motor finance agreements issued from April 6, 2007, until November 1, 2024, in which dealerships received “discretionary commissions.”[2] The FCA found that motor finance lenders violated existing legal and regulatory standards by withholding key information about the loans, which led to consumers being “denied the chance to negotiate or find a better deal and, in some instances, paying more for their loan.”[3] The FCA determined that this system created clear conflicts of interest and led to consumers paying more than they otherwise would have for credit.[4]
The FCA estimates that the Car Loan Redress Scheme will encompass millions of consumers, and that people will receive about £700 per loan agreement, with total lender liability reaching as much as £8.2 billion.[5] Lenders, including several large U.K. institutions, have already disclosed provisions totaling billions of pounds to prepare for potential claims.[6] Industry analysts and executives expect this to be one of the largest compensation efforts in the agency’s history.[7]
As the U.K.’s primary financial conduct regulator, the FCA exercises broad rule-making powers to protect consumers and ensure market integrity. The FCA derives its general authority to impose such measures from its statutory powers under the Financial Services and Markets Act 2000 (“FSMA 2000”); specifically, section 137A, which authorizes the FCA to “make such rules applying to authorized persons as [it] considers necessary or expedient for the purpose of advancing one or more of its operational objectives.”[8] Using this rule-making power, the FCA promulgates the Consumer Credit Sourcebook (“CONC”) within its regulatory Handbook, setting out mandatory conduct standards for firms engaged in credit activities.[9] These provisions require lenders to ensure that consumers are not misled about the total cost of credit, and that any commission arrangements do not create unfair incentives or conflicts of interest.[10]
The Car Loan Redress Scheme aims to provide a simple and efficient process for consumers to obtain redress, thereby reducing administrative costs and uncertainty for both borrowers and firms; redress schemes have been increasingly used in recent years, offered by the regulatory agency as an alternative to costly litigation in English courts.[11]
This represents the FCA’s continued use of its power under Section 404 of the FSMA 2000, which authorizes the agency to create industry-wide “consumer redress schemes” when systemic misconduct is identified.[12] This section, in effect, combines the rule-making and adjudication powers of the FCA. It allows the agency to mandate compensation through rulemaking rather than case-by-case litigation, reflecting a broader trend in U.K. administrative law that favors regulatory remediation.[13] This blending of legislative and quasi-judicial functions has prompted debate over the scope of administrative authority in the U.K., yet courts have so far upheld the FCA’s broad discretion where consumer detriment is clear.[14]
In recent years, the FCA has increasingly relied on this framework — most notably in the Arch Cru investment scheme by the Financial Services Authority (the FCA’s predecessor) and the British Steel Pension Scheme — to ensure timely and standardized compensation for large classes of affected consumers.[15] As such, the 2025 Car Loan Redress Scheme is not an isolated measure but part of a maturing legal strategy that positions administrative redress as a core enforcement tool within the FCA’s consumer-protection mandate.
The Car Loan Redress Scheme represents the latest and one of the largest uses of the agency’s power to compel industry-wide compensation. The growing use of such schemes shows that redress is now the agency’s preferred tool for addressing systemic misconduct in the British financial markets. This approach allows the FCA to deliver compensation efficiently while reinforcing public confidence in the integrity of financial markets. The FCA’s increasing reliance on such schemes, following earlier programs, reflects a deliberate policy shift toward regulatory remediation rather than litigation. For firms and business lawyers, the message is unmistakable: consumer transparency and ethical governance are not merely compliance objectives but essential safeguards against the legal and financial risks of mass remediation.
[1] See Press Release, Financial Conduct Authority, 14m Unfair Motor Loans Due Compensation Under FCA-Proposed Scheme (Oct. 7, 2025), https://www.fca.org.uk/news/press-releases/14m-unfair-motor-loans-compensation-proposed-scheme [https://perma.cc/9A8Z-K74X].
[2] Id.
[3] Id.
[4] See id.
[5] Id.
[6] Martin Arnold, Banks to Pay out £11bn for UK Car Finance Mis-Selling Scandal, Says Regulator, Fin. Times (Oct. 7, 2025), https://www.ft.com/content/d3a2b307-b60b-40a0-a492-539d90aa5afb (on file with the American University Business Law Review); Tommy Reggiori Wilkes & Raechel Thankam Job, Lloyds Warns of Bigger Hit From UK Motor Finance Scandal, Reuters (Oct. 9, 2025, at 08:55 ET), https://www.reuters.com/business/finance/lloyds-warns-potential-hit-uk-motor-finance-probe-2025-10-09/ [https://perma.cc/G3B3-GYRU].
[7] Elena Vardon, Banks Warn of Heavier Hit From U.K. Car-Loan Redress, Wall St. J. (Oct. 9, 2025, at 09:50 ET), https://www.wsj.com/articles/lloyds-banking-group-could-book-extra-provision-for-car-loan-redress-01d39473 (on file with the American University Business Law Review) (“[I]nitial thoughts are that the number of cases in scope could be higher suggests that the 2 billion pounds may be more of a central scenario than worst case.”).
[8] Financial Services and Markets Act 2000, c. 8, § 137A (UK), https://www.legislation.gov.uk/ukpga/2000/8/section/137A [https://perma.cc/LH9L-H97R].
[9] See Rob Moulton, Nicola Higgs & Becky Critchley, Financial Regulatory Quick Start Guide, Latham & Watkins LLP, https://www.lw.com/admin/Upload/Documents/UK-Consumer-Credit-Regime-QSG.3.pdf [https://perma.cc/7RS5-DABX]. See generally Fin. Conduct Auth., PS14/3: Detailed Rules for the FCA Regime for Consumer Credit 32–66 (Feb. 2014), https://www.fca.org.uk/publication/policy/ps14-03.pdf [https://perma.cc/F8V8-UXY4] (outlining conduct rules for general credit activities).
[10] See Fin. Conduct Auth., CONC Consumer Credit Sourcebook § 3.3.1 (2015), https://handbook.fca.org.uk/handbook/conc3 [https://perma.cc/X7B4-3V4P].
[11] See You Kyung Huh, Toward Regulatory Mass Redress Schemes – Mass Redress in Financial Mis-Selling Scandals in the U.S., the U.K. and South Korea, 30 Ind. Int’l & Compar. L. Rev. 99, 107–10 (2019), https://mckinneylaw.iu.edu/practice/law-reviews/iiclr/pdf/vol30p99.pdf [https://perma.cc/A5KB-AZBL] (addressing the rising preference for mass redress schemes in the U.K. instead of costly litigation).
[12] Financial Services and Markets Act 2000, c. 8, § 404 (UK), https://www.legislation.gov.uk/ukpga/2000/8/section/404 [https://perma.cc/6C5P-62RP].
[13] See Huh, supra note 11, at 109.
[14] See generally Sam Tobin & Kirstin Ridley, Barclays Loses UK Motor Finance Challenge as Redress Looms, Reuters (Dec. 17, 2024, at 09:07 ET), https://www.reuters.com/business/finance/barclays-loses-challenge-motor-finance-ruling-uk-watchdogs-redress-scheme-looms-2024-12-17/ [https://perma.cc/5GVG-MWUK] (rejecting a lender’s challenge to compensation determinations arising from undisclosed commission practices in motor-finance agreements).
[15] See Fin. Servs. Auth., PS12/24: Consumer Redress Scheme in Respect of Unsuitable Advice to Invest in Arch Cru Funds 9–14 (Dec. 2012), https://www.fca.org.uk/publication/policy/ps12-24.pdf [https://perma.cc/MBA7-SCZ8]; Fin. Conduct Auth., PS22/14: Consumer Redress Scheme for Unsuitable Advice to Transfer Out of the British Steel Pension Scheme 3–4 (Nov. 2022), https://www.fca.org.uk/publication/policy/ps22-14.pdf [https://perma.cc/J9MQ-AS97].
