(Commonwealth_Europe) Shares in some of the UK’s biggest car lenders climbed on Wednesday morning after the country’s financial watchdog eased earlier estimates of how much compensation the industry might have to pay under a new redress scheme.
Lloyds Banking Group, Close Brothers Group, and Barclays all saw their share prices rise after the Financial Conduct Authority (FCA) released fresh details of its compensation plan for customers who were unfairly charged when taking out car loans between 2007 and 2024.
If about 85% of eligible consumers participate, the FCA now expects the total compensation bill to reach around £8.2 billion. Once administrative and operational expenses are included, that figure could rise to roughly £11 billion, still significantly lower than previous projections that had placed the total between £9 billion and £18 billion.
For many lenders, this update offered a glimmer of relief after months of uncertainty. The regulator also clarified that the average payout per customer would likely be about £700, down from earlier expectations of nearly £950.
Lloyds Banking Group, which has the largest exposure to the car finance market through its Black Horse division, said it is “currently assessing the implications and the impact of this consultation in the context of its current provision for the issue.” The bank has already set aside £1.2 billion to cover potential compensation and related costs. Following the announcement, Lloyds’ shares were up around 3%, while Barclays and Close Brothers rose by roughly 1.5%.
Barclays has earmarked £80 million to address the issue so far, while Close Brothers has made provisions of £165 million. Santander, another major player in car finance, though not listed on the London Stock Exchange, has put aside £295 million.
However, some analysts maintain that the industry may still face challenges. Shore Capital’s equity analyst, Gary Greenwood, estimated that lenders have so far set aside around £2 billion in combined provisions — meaning additional funds may still be required as claims roll in.
Danni Hewson, head of financial analysis at AJ Bell, said the FCA’s announcement will likely be welcomed by lenders, who had been bracing for far larger payouts. “Lenders had already breathed a sigh of relief about the scale of compensation they would have to dish up to motorists, and Tuesday’s update from the FCA brings the bar even lower,” she said.
Even so, Hewson pointed out that the scandal leaves a mark on the industry’s reputation. Around 14 million car buyers could still be eligible for compensation after the regulator found that finance firms failed to properly disclose the commissions dealers earned on loans—a practice that often-left customers paying higher rates than necessary.
“While this scandal doesn’t come close to the one surrounding PPI,” Hewson added, “it still leaves a bad taste for many motorists who trusted that they were getting a fair deal.”
The FCA’s final rules and next steps are expected to shape how much more the banks and finance companies will ultimately have to pay, but for now, investors appear cautiously optimistic that the worst of the financial shock may have been avoided.
