The UK’s financial watchdog has warned car finance firms it will not tolerate claims of “lost” customer records as it prepares an industry-wide compensation scheme worth up to £18bn. The Financial Conduct Authority (FCA) said lenders must prove they cannot access data rather than using it as a blanket excuse to block claims. The scheme, set to cover mis-sold car loans dating back to 2007, could provide millions of drivers with average payouts of around £950 each. The regulator is now under pressure to ensure consumers are compensated fairly after a Supreme Court ruling against unfair commission practices.
FCA Toughens Stance on Data Gaps
FCA chief executive Nikhil Rathi told MPs on the Treasury committee that lenders will face forensic scrutiny if they insist they no longer hold historical loan records. “Where a firm says to us that they don’t have the data, we’re not just going to take that at face value,” he said. The intervention follows industry complaints that verifying claims nearly two decades old will be difficult, given banks’ practice of deleting customer records after six years. The FCA only ordered lenders to stop destroying car finance documents in 2024, leaving a significant gap in historic files.
Possibility of Reconstructing Records
Senior FCA officials insisted data gaps should not prevent redress. Sheree Howard, the regulator’s executive director for authorisations, told MPs that firms may need to work with external sources. “There is an ability, we think, across quite a high proportion [of firms] to get reasonable data,” she said, pointing to credit reference agencies as one route to supplement missing information. The FCA has made clear that lenders must explore such options rather than rely on lost files as a defence.
£18bn Compensation Risk for Lenders
The FCA estimates the scheme could cost lenders between £9bn and £18bn, depending on the volume of claims. Major high street banks including Lloyds Banking Group and Santander UK, along with specialist firms such as Close Brothers, are among those potentially facing heavy payouts. The scheme follows the Supreme Court’s August ruling, which upheld one of three consumer complaints over excessive dealer commissions. Judges concluded that commissions in at least one case were “unfair” and had not been properly disclosed, setting a precedent for millions of contracts.
Industry Pushback and Legal Threats
Some lenders have already raised the prospect of legal challenges. The Finance and Leasing Association, which represents the industry, said it could take the regulator to court if payouts were deemed “disproportionate.” Meanwhile, Rathi acknowledged that certain firms may try to delay the process. “There may be parties that seek to delay this,” he warned. Treasury committee chair Meg Hillier pressed him to name the lenders involved, questioning whether companies with “deep pockets” were attempting to influence the regulator. Rathi declined to identify them publicly, suggesting the issue should be addressed privately.
Impact on Investors and Regulation
The FCA rejected claims its handling of the car finance scandal was damaging the UK’s reputation for financial investment. “If a firm, or their dealers or agents, have not been honest with their customers, that’s not a chilling effect created by the regulatory system,” Rathi said. The consultation on the redress scheme will open by October, with the FCA hoping the majority of compensation payments will be made in 2025. However, further disputes with lenders could prolong what is already one of the most expensive consumer scandals since the payment protection insurance (PPI) crisis.
