Car Finance Compensation Payouts Could Be Far Lower Than PPI Scandal Says Regulator

The Financial Conduct Authority (FCA) has indicated that compensation awarded to consumers in the ongoing car finance scandal is expected to be much less than the sums paid during the Payment Protection Insurance saga. Nikhil Rathi, chief executive of the FCA, said the amount involved is likely to be “substantially less” than the PPI redress, which saw nearly £50 billion paid to UK consumers over a decade.

This news should bring some reassurance to the financial sector, as previous estimates had suggested car finance payouts could reach similar levels to the notorious PPI scandal. Rathi emphasised that while it remains likely that an industry-wide redress scheme will be introduced, the overall compensation should not approach the scale seen with PPI.

The FCA is poised to make an announcement before the opening of the markets on Monday, potentially confirming whether it will launch a consultation on such a scheme. Key issues remain up for discussion, including whether customers will need to opt into the programme, what interest rates will be applied to any compensation, and whether lenders will be required to set aside additional funds to cover potential liabilities.

Attention was drawn to Close Brothers, a prominent car finance provider, which released an urgent statement on Saturday. The company said it could not make any decisions regarding its own £165 million provision for possible compensation payouts until it had received further clarification from the regulator.

The Supreme Court’s recent decision has been widely seen as a success for car financing firms. Analysts suggest that this judgement allows lenders to avoid a compensation bill approaching PPI levels, with current industry estimates for motor finance redress standing at up to £13 billion. Rathi declined to be drawn on exact figures.

The FCA’s deliberations follow its 2021 ban on the controversial practice of dealers manipulating car finance interest rates to boost commission payments. Many complaints based on these arrangements had been on hold pending the outcome of the Supreme Court case.

The court’s ruling does not mark the end of considerations, as the FCA must now decide whether certain commission arrangements—such as a case involving a 55 percent commission rate on a single car loan—were unfair. This adds an extra layer of complexity as officials seek to balance fair compensation for consumers against the need to maintain a robust and competitive car finance market.

Decision makers must also clarify whether redress will be bank-led, define excessive commissions, establish how far back claims can be made, and choose the interest rate for compensation. The City will be monitoring lender share prices closely as the market digests the regulatory response, while firms like Aldermore and Close Brothers may see significant shifts based on the FCA’s next moves.