Consumers may be denied up to £1 billion in compensation linked to inflated car loans due to widespread data deletion by banks and lenders, legal experts have warned — a blow that could leave millions without redress in what could become the largest scandal since the £50bn PPI payouts.
The warning comes as the UK’s Supreme Court prepares to issue a pivotal ruling that could trigger a sweeping compensation scheme, potentially impacting thousands of drivers who took out car finance agreements before 2018.
However, legal firm Courmacs Legal says many of these consumers may be untraceable, as banks have routinely deleted historical customer records older than six years — the typical data retention limit.
The Financial Conduct Authority (FCA) instructed lenders to preserve documentation when it launched its formal investigation into discretionary commission arrangements (DCAs) in January 2024.
But for many customers whose contracts ended before 2018, critical data may have already been erased — potentially rendering them ineligible for compensation.
Courmacs claims that 465,000 of the complaints it is handling relate to agreements concluded over six years ago.
If these claimants are excluded from a redress scheme, the total value of lost compensation could reach £1.18bn, with each consumer potentially missing out on an average payout of £2,365.
“There’s a real danger that millions who were overcharged will never hear from the banks that took advantage of them,” said Darren Smith, managing director of Courmacs Legal.
The potential redress scheme stems from a Court of Appeal judgment in October 2023, which deemed it unlawful for car dealerships to receive secret commissions on finance deals without informing customers.
The ruling significantly broadened the scope of the FCA’s inquiry into potentially exploitative lending practices — including DCAs, where dealers could hike up interest rates to boost their commissions.
Banks and specialist lenders such as Lloyds, Barclays, Santander UK, and Close Brothers are now bracing for compensation costs that analysts suggest could reach £44bn. Even Chancellor Rachel Reeves weighed in, cautioning the Supreme Court against authorising “windfall” payouts that could hit financial institutions hard.
The Financing and Leasing Association, which represents major lenders, acknowledged the risks posed by incomplete records, stating: “We’ve made it clear to the FCA that fair outcomes can’t be guaranteed if the data is inconsistent or missing.”
While the FCA has yet to confirm whether a formal redress scheme will be introduced, consumer finance expert Martin Lewis has voiced concern over the implications of missing data.
“There’s a risk people will lose out through no fault of their own,” he warned, although he urged consumers to remain calm until the court ruling provides clarity, expected within the next two months.
The precedent set by the PPI scandal saw banks encouraged to side with consumers even in cases where paperwork was unavailable. However, it remains uncertain whether a similar approach will be adopted in this case.
An FCA spokesperson commented: “If a redress scheme is introduced, we’ll work closely with the industry to ensure it’s straightforward for consumers to complain.”
Lloyds Banking Group — the UK’s largest car finance provider — disputed Courmacs’ figures and advised consumers to contact their lender directly rather than rely on claims management firms.
