UK Car Loan Industry Accepts £9 Billion Mis-Selling Redress Scheme as Aldermore Put Up for Sale
The UK's motor finance industry has accepted a sweeping £9 billion consumer redress scheme to compensate customers who were mis-sold car loans, with Lloyds Banking Group confirming it will not challenge the plan — while South African bank FirstRand has put its UK subsidiary Aldermore up for sale after condemning the scheme as "deeply flawed."
Background
The Financial Conduct Authority (FCA) published its motor finance consumer redress scheme, known as PS26/3, on 30 March 2026, following a lengthy investigation into the car loan industry. The probe found that lenders and car dealerships had inadequately disclosed commission arrangements, which incentivised brokers to inflate vehicle loan rates, leaving millions of consumers paying more than they should have between 2007 and 2024.
Key Developments
The FCA estimates the scheme will return £7.5 billion to consumers, with industry analysts putting the total cost to lenders at approximately £9.1 billion. Millions of claims are expected to be settled in 2026, with the vast majority concluded by the end of 2027. Firms have until 30 June 2026 to prepare for loans taken out from April 2014, and until 31 August 2026 for earlier agreements.
Lloyds Banking Group, one of the UK's largest providers of vehicle loans, confirmed it will not take legal action against the FCA's scheme. The bank had previously faced a separate £66 million lawsuit from 30,000 consumers over its motor finance practices.
However, FirstRand, the South African owner of UK challenger bank Aldermore, has reacted furiously to the scheme. The company increased its provisions for mis-sold motor loans by £510 million to a total of £750 million — a figure it described as disproportionate given that Aldermore generated only £275 million in profits from motor activities over more than a decade. FirstRand has put Aldermore up for sale, stating that consumer finance in the UK "can no longer deliver the required returns" and that ownership of Aldermore is "outside its risk appetite."
Why It Matters
The redress scheme represents one of the largest consumer compensation programmes in UK financial history. The FCA argued that without the scheme, the cost to lenders of handling complaints through the Financial Ombudsman or courts would be over £6 billion higher. The regulator also noted that a record £41 billion was lent in motor finance in 2025 and does not foresee further major redress events on the horizon.
What's Next
The government is expected to outline further City reforms in the upcoming King's Speech, including a financial services bill aimed at completing several planned regulatory changes. Aldermore's sale process is expected to begin in the coming months. Read the full Reuters report here.
