Britain’s major banks saw their market value jump by more than £5 billion in a single day after regulators announced a car finance compensation plan that costs far less than feared. The Financial Conduct Authority revealed on October 7, 2025, that the total redress for mis-sold car loans would hit around £8.2 billion, easing worries of a bill up to £18 billion and sparking a rally in bank shares across London.
This boost came as investors cheered the lower than expected costs for compensating millions of drivers hit by hidden commissions over 17 years. With payouts set to average £700 per deal, the scheme targets unfair practices from 2007 to 2024, where dealers often kept quiet about fees and pushed high interest rates.
How the Scheme Lowers Bank Costs
The FCA’s plan focuses on discretionary commission arrangements, where lenders shared interest income with dealers without telling customers. This led to overcharges on about 14 million car finance agreements.
Experts had predicted costs could soar to £18 billion, but the regulator now estimates £8.2 billion if 85 percent of eligible people claim. That figure could rise to £9.7 billion with full participation, still a relief for banks that braced for worse.
Banks like Lloyds, the biggest player in UK car loans, had already set aside hefty sums. The lower estimate means some provisions might cover the hit without extra pain.
In early trading on October 8, 2025, shares reacted fast. Close Brothers led with a 10.3 percent spike, while Lloyds added over £1 billion to its market cap.
Key Banks and Their Market Gains
Several top lenders felt the positive wave from the announcement. Barclays shares climbed 1.13 percent, beating the FTSE 100’s 0.69 percent rise.
Here is a quick look at provisions banks made for potential claims:
| Bank | Provision Amount (£ million) | Market Share Impact |
|---|---|---|
| Lloyds Banking Group | 1,150 | Largest lender, may need up to 1,500 more |
| Santander | 290 | Stable amid lower estimates |
| Barclays | 95 | Shares outperformed index |
| Close Brothers | 165 | Biggest share surge at 10.3% |
These reserves show how banks prepared, but analysts say the final bill might not force major new hits. For Lloyds, extra costs could reach £1.5 billion, yet the stock rally suggests confidence.
The scheme’s details, released just days ago, include coverage for loans up to November 2024. It aims to make claims easy and free for consumers.
What Drivers Can Expect from Payouts
Millions of UK motorists who bought cars on finance between April 2007 and November 2024 might qualify. The FCA expects most claims to come from deals with hidden commissions over 35 percent of the loan’s credit cost.
Average payouts could reach £700, based on overcharges from undisclosed fees. Regulators warn that some lenders claim lost records, but the FCA plans to challenge those excuses.
To help drivers understand eligibility, here are key points:
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- Check if your loan was personal contract purchase or hire purchase.
- Look for deals before January 2021, when new rules banned discretionary commissions.
- Claims could start in early 2026 after the consultation ends on November 18, 2025.
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This follows a wave of complaints, with consumer advocates like Martin Lewis highlighting the issue as “PPI on wheels.” Recent data shows over 260,000 complaints already filed in one day last year.
Broader Impact on UK Finance Sector
The lower costs ease pressure on banks at a time when the economy faces other challenges. Rising living costs have left many workers skipping meals or using food banks, as a recent survey of 2,000 low paid employees found.
In related money news, retailers like Aldi are slashing Christmas prices to match rivals, promising the cheapest turkeys and hams from December 19 to 23, 2025.
For banks, this scheme resolves a long running scandal that echoed the payment protection insurance mis-selling, which cost lenders £50 billion over a decade. Analysts predict the car finance redress will strengthen trust in the sector without derailing profits.
The FCA’s move also signals tougher oversight, with a £1 million awareness campaign launched to inform consumers. As Britain grapples with wage pressures and holiday spending, this could put extra cash in drivers’ pockets just in time.
Future Outlook and Investor Sentiment
Looking ahead, banks might adjust strategies to avoid similar issues. The scheme’s success depends on smooth payouts, with regulators consulting until mid November.
Investors seem optimistic, as seen in the quick market bounce. If costs stay low, it could free up capital for lending and growth in a recovering economy.
Recent events, like the Bank of England’s steady interest rates amid inflation dips to 1.7 percent in September 2025, add to the positive vibe. Banks could use this momentum to expand services, from green loans to digital banking.
What do you think about the car finance scheme? Share your thoughts in the comments below, and pass this article to friends who might qualify for compensation.
