Vauxhall and Peugeot’s parent company Stellantis has earmarked £37 million to cover potential claims linked to the mis-selling scandal sweeping the car finance industry — a crisis regulators warn could cost lenders as much as £18 billion.
The provision, revealed in accounts filed by Stellantis Financial Services UK, highlights the growing financial fallout from the motor finance review launched by the Financial Conduct Authority (FCA). The watchdog is preparing an industry-wide compensation scheme that analysts say could rival the scale of the £50 billion payment protection insurance (PPI) redress programme.
At the centre of the scandal are “discretionary commission arrangements” (DCAs) — hidden incentives paid by lenders to car dealers for arranging vehicle loans. Under the model, which was in place for more than a decade, dealers could set the interest rate charged to buyers, often inflating borrowing costs to earn larger commissions. The FCA banned the practice in 2021 but is investigating deals dating back as far as 2007.
The regulator estimates that 14.6 million car finance contracts involved discretionary commissions. FCA chief executive Nikhil Rathi told MPs last week that “a very significant portion” were probably unlawful because lenders and dealers failed to properly disclose the payments to customers.
Provisions across the sector
Stellantis, whose brands also include Citroën, Fiat and Jeep, operates its UK finance arm as a joint venture with French bank BNP Paribas. Its £37 million provision was signed off in April 2024 — before the FCA confirmed last month that it will impose a mandatory compensation scheme. The regulator is expected to launch a consultation in the coming weeks, with customer payouts likely to begin next year.
Other big lenders have already set aside hefty sums. Lloyds Banking Group, which analysts believe is most exposed, has earmarked £1.15 billion. Santander UK has provided £295 million, while BMW’s UK financial services division has disclosed £70 million.
The FCA has warned the redress programme could ultimately cost the industry between £9 billion and £18 billion, making it the largest consumer compensation exercise since the PPI scandal.
The FCA’s scheme will not be limited to discretionary commissions. A landmark Supreme Court ruling in August clarified that some non-discretionary commissions — where the interest rate was fixed but payments to dealers were not clearly disclosed — could also be deemed unfair.
The court largely sided with lenders, reducing the prospect of a worst-case scenario for the sector, but upheld a consumer claim over an arrangement involving a non-discretionary commission. This means compensation will likely extend beyond discretionary arrangements.
Stellantis did not make a provision for non-discretionary commissions because its accounts were finalised before the judgment, but analysts expect further disclosures as companies reassess their liabilities.
Feeding frenzy for claims firms
The scandal has sparked a wave of activity from claims management companies and law firms, which are already advertising for affected motorists to pursue claims. However, the FCA has warned consumers that it is unnecessary to use third parties, since its redress scheme will be free and automatic once it is in place.
The authority has also pledged to guard against a repeat of the PPI saga, when aggressive marketing by claims firms fuelled billions in fees.
For carmakers and lenders, the financial hit comes at a difficult time. The automotive sector is already grappling with the shift to electrification, rising costs and post-Brexit trade barriers. For Stellantis, which has pledged major investment in UK battery production through its Ellesmere Port and Luton plants, the looming redress bill is another potential drain on resources.
Consumer groups, meanwhile, say the payouts are overdue. They argue that millions of buyers paid inflated interest charges on car loans without ever being told about the commissions. With average compensation expected to run into hundreds of pounds per deal, the scheme could benefit millions of households at a time when living costs remain high.
The FCA is expected to publish details of its proposed redress framework before the end of the year, setting the stage for the largest wave of consumer payouts in more than a decade.
Stellantis declined to comment.
