About £1bn in car loan compensation at risk because data deleted, lawyers warn

The Guardian

26-05-2025

Consumers are at risk of losing £1bn of compensation over inflated car loans because high street banks and specialist lenders deleted their data, claims lawyers have warned.
Borrowers, banks and the government are anxiously awaiting a ruling from the supreme court that could spark one of the biggest redress schemes since the £50bn payment protection insurance (PPI) saga.
But some consumers could miss out because most banks typically purge customer data after six years. The Financial Conduct Authority (FCA) ordered firms to stop deleting car finance documents when it launched its initial investigation in January 2024. But the files relating to customers with contracts that ended more than six years earlier may have already been lost.
That could be a problem if the FCA sets up a compensation scheme where banks are ordered to contact borrowers who may be due a payout.
Claims law firm Courmacs Legal says that 465,000 consumer complaints on its books fall into this category, having been paid off before 2018. If all those claimants faced document deletion hurdles, they could lose out on £1.18bn worth of compensation – an average of £2,365 each – according to Courmacs' estimates.
'There is a real risk that millions of people will lose out because the banks which ripped them off will never write to them,' Darren Smith, managing director of Courmacs, said.
The Financing and Leasing Association, which represents leading car loan providers including Lloyds, Santander UK and Close Brothers, said: 'We have made clear to the FCA that consistent and fair outcomes cannot be delivered with patchy or absent data.'
The car loans scandal has been rumbling on for more than a year, but ballooned in October when a court of appeal judgment vastly expanded an FCA investigation into potentially harmful commission arrangements. It determined that paying a secret commission to car dealers, who had arranged the loans without disclosing the sum and terms of that commission to borrowers, was unlawful.
It sparked panic over compensation costs, with lenders including Santander UK, Close Brothers, Barclays and Lloyds potentially on the hook for up to £44bn, according to some analysts. Even chancellor Rachel Reeves attempted to intervene, warning supreme court judges ahead of the April hearing to avoid handing 'windfall' compensation to borrowers.
It is unclear whether the court of appeal ruling will be upheld. But consumer champion Martin Lewis said he was still concerned over how data deletion issues would be handled if there is compensation for discretionary commission arrangements (DCAs), which were the subject of the FCA's original investigation.
DCAs, which were banned in 2021, allowed car dealerships to earn more commission by setting higher interest rates, providing an incentive to make loans more expensive for consumers.
'I do have concerns about it. I am worried about how it will play out,' Lewis said. However, he urged consumers not to panic. 'We have to hope that the regulator will be on top of firms who have destroyed data, [and] we are only potentially two months away from having some clarity of what's going on.'
While banks were urged during the PPI scandal to err on the side of consumers, even when there was no documentation, it is not yet clear how this will play out for car loans.
An FCA spokesperson said: 'If we decide to undertake a redress scheme, we will work with industry and other interested parties to ensure that it is as clear and straightforward as possible for customers to complain.'
Lloyds Banking Group, the biggest provider of car loans, said: 'We do not recognise these figures shared by Courmacs, and encourage people to contact their car finance provider directly to avoid paying claims management fees.'