Favorable motor finance decision propels Lloyds by 30%, while Close Brothers experiences a 30% drop
Following a landmark ruling by the UK Supreme Court in early August 2025, the Financial Conduct Authority (FCA) has announced plans to consult on an industry-wide compensation scheme for motor finance customers who may have been overcharged due to undisclosed commission arrangements.
The Supreme Court's judgement was described as a "clearing event" for Lloyds Bank, with the bank's shares rising more than 6% on Monday. The ruling, while favouring banks in part, has left them facing potential millions in compensation claims. Other banks, such as Barclays and Close Brothers, also experienced share price increases, with Barclays gaining 1.9% and Close Brothers jumping by 30% at the open on Monday.
The FCA's consultation, set to launch around October 2025, will outline the details of the compensation scheme, including how lenders should decide if compensation is due, the factors determining unfairness, possible eligibility thresholds, and whether the scheme will be opt-in or opt-out for customers.
It is estimated that most claimants will receive less than £950 each, but the total potential cost to the industry could range between £9 billion and £18 billion. First compensation payments are expected in 2026, assuming the scheme proceeds after consultation.
Consumers who have already complained to their finance provider do not need to take further action, but those concerned about nondisclosure of commission and potential overpaying are advised to submit complaints now. Complaints submitted on or after 17 November 2023 can be paused until the FCA’s investigation concludes in late 2025; earlier complaints continue normally.
The FCA will closely monitor firms' adherence to the final rules and intervene if necessary to ensure fair customer redress. Consumers are advised to engage directly with their providers, avoiding claims management firms that might charge high fees.
In summary, the UK is in the implementation phase following the Supreme Court ruling, with an FCA-led consultation scheduled and a large-scale compensation scheme for affected car finance customers projected to begin payments in 2026.
- The compensation scheme proposed by the FCA,regarding undisclosed commission arrangements in motor finance, could potentially cost the banking-and-insurance industry between £9 billion and £18 billion, as a result of the Supreme Court's ruling.
- The revised business model of banks, including Lloyds Bank, Barclays, and Close Brothers, in the financial industry, might need to accommodate the impending compensation payouts under the proposed industry-wide scheme, following the FCA's announcement.
