Lloyds Bank has confirmed it will pay an average of £829 in compensation to eligible customers who were mis-sold car finance, as part of a wider redress scheme overseen by the Financial Conduct Authority (FCA). The bank, which operates branches in Birmingham, said moving forward with the scheme is now the "right step" for its customers and shareholders.
The payouts relate to car finance agreements made between 2007 and 2024, where customers were allegedly overcharged or placed in unfavourable lending arrangements. According to the bank, more than 12 million drivers — representing 37% of all agreements made during that period — are set to receive a portion of an estimated total of £7.5bn in compensation.
Bank's Statement and Rationale
A Lloyds spokesperson said in an emailed statement in April: "We have carefully considered the FCA motor finance redress scheme. While we remain disappointed in and disagree with its conclusions, we believe that moving forward with the scheme is now the right step for our customers and shareholders."
The announcement follows months of deliberation by the bank, which had previously resisted the FCA's proposed approach. The redress scheme is designed to provide a streamlined route for consumers to claim compensation without resorting to legal action.
Legal Challenges and Criticism
However, the scheme has faced criticism from claims management firms. Darren Smith, managing director of Courmacs Legal, said: "The FCA's proposed redress scheme looks like it will let lenders off the hook because the banks have lobbied to minimise payouts to victims. If the regulator had put consumers first, the decision to use the courts would not be this attractive. We had no choice but to act in the best interests of our clients and will continue to do so."
Claims law firms, which typically take a cut of any successful case, have previously argued that the scheme favours big banks and specialist lenders that have lobbied regulators and Labour Party government MPs. They have also warned that large compensation payouts could force some providers to withdraw loans or even collapse.
FCA's Response and Consumer Impact
In response, a spokesperson for the FCA said: "A redress scheme would be free to use, meaning consumers get fair compensation more quickly and don't lose as much as 30% of it in fees. Legal representatives need to weigh carefully what is in their clients' interests."
The FCA emphasises that the scheme is designed to be accessible and cost-free for consumers, ensuring that the majority of any payout reaches the affected customer rather than being absorbed by legal fees. For Lloyds customers in Birmingham and across the UK, the average payout of £829 will be issued to those identified as eligible under the scheme's criteria.
The bank's decision to participate in the redress scheme means that affected customers will not need to pursue court action to receive compensation. However, those who have already engaged legal representation may still face fees, depending on their individual arrangements. The full rollout of payments is expected to follow the FCA's finalisation of the scheme's details.
