Compensating UK drivers for mis-sold car loans may cost far more than first expected. Industry sources warn the government-backed Redress Plan could face serious delays. This raises doubts about whether payouts will begin in 2026.
In October, the Financial Conduct Authority (FCA) published its proposed Redress Plan. The regulator estimated the total cost at about £11 billion. This figure includes £8.2 billion in compensation and £2.8 billion in administrative costs. Following the estimate, major lenders increased the funds set aside for possible claims.
However, banking and industry sources say the real cost could be much higher. Some estimates place the bill between £18 billion and £20 billion. The higher figures are linked to the FCA’s wider definition of unfair loans. The regulator also set a lower threshold for what counts as excessive commission.
Sources say these assumptions have significantly increased the expected payouts. If the FCA does not revise its approach, lenders may launch legal challenges. Such action could be expensive and time-consuming. It may also delay payments to consumers.
The FCA consultation on the Redress Plan closes on Friday. While lenders are unlikely to publish their own cost estimates, many are expected to raise formal objections. The dispute has created uncertainty for banks and finance firms planning their final provisions.
The issue also tests the FCA’s role under the Labour government. The government has urged regulators to support economic growth. Reducing pressure on financial services is part of that effort.
A spokesperson for the FCA said the regulator aims to finalise the plan by the end of March. It hopes to begin payouts next year. The spokesperson said the FCA has engaged widely with stakeholders. Feedback from the consultation will help refine the proposals.
The regulator wants lenders to repay commissions that were not properly disclosed. It also targets exclusive relationships between dealers and lenders. The FCA believes these arrangements encouraged higher interest rates.
Some lawmakers and industry figures say the plan conflicts with a Supreme Court ruling made in August. They argue the long time period covered adds operational challenges.
Another concern is whether customers actually suffered losses. Some dealerships used commission income to offer car discounts. Industry groups say compensation should only go to customers who can prove financial harm.
The Finance and Leasing Association has called for a quick and fair solution. Some lenders are also asking the government to intervene. The finance ministry has urged all parties to take part in the consultation.
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Until the disagreements are resolved, the future of the Redress Plan remains uncertain.
