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Lloyds Banking Group is facing a court battle with 30,000 aggrieved car loan customers who are to abandon the City regulator’s official redress scheme amid fears it will shortchange consumers and favour lenders.
The claims law firm Courmacs Legal is planning to file a £66m omnibus claim on behalf of borrowers who believe they were financially harmed by car loan contracts set up by Lloyds’ motor finance arm, Black Horse.
The grievances are part of a much wider car loans commission scandal, in which drivers were overcharged for their loans due to unfair commission arrangements between lenders and car dealers.
However, the omnibus case, which is expected to be filed in the coming weeks, means consumers are deciding to pre-emptively waive their rights to the Financial Conduct Authority’s (FCA) estimated £11bn compensation scheme, even before the final details are due to be set out on Monday. That is despite claims law firms such as Courmacs taking a 28% cut of any potential payout.
The news comes as claims law firms and consumer groups allege that borrowers will end up being shortchanged by the FCA scheme, based on draft details that were put out for consultation in the final months of 2025.
Consumers are set to receive £700 per claim on average under the FCA’s proposals, less than half of the £1,500 average payout that groups such as the all-party parliamentary group on fair banking say consumers should be due.
Claims law firms, which take a cut of any successful case, have argued that the scheme favours big banks and specialist lenders that have lobbied regulators and government, warning that large compensation payouts could force some providers to withdraw loans or even collapse.
Warnings from lenders have already prompted controversial interventions, with the chancellor, Rachel Reeves, cautioning judges against handing large payouts to consumers. Last summer she even considered overruling the supreme court if it sided too closely with consumers.
“The FCA’s proposed redress scheme looks like it will let lenders off the hook because the banks have lobbied to minimise payouts to victims,” Darren Smith, managing director of Courmacs Legal, said. “If the regulator had put consumers first, the decision to use the courts would not be this attractive. We had no choice but to act in the best interests of our clients and will continue to do so.”
The case, which is being backed by litigation funders, is expected to be the first in a series of omnibus suits against other lenders in the motor finance mis-selling scandal. A source close to Courmacs said it was likely similar omnibus actions against other major car finance lenders would be launched later this year.
However, a court of appeal case brought by Lloyds and other banks is looking to block group legal actions over the car finance scandal. That could complicate Courmacs’s omnibus claims from moving forward, though the firm said it did not expect delays to its own actions. The court of appeal case is due to be heard in April.
A spokesperson for the FCA said: “A redress scheme would be free to use, meaning consumers get fair compensation more quickly and don’t lose as much as 30% of it in fees. Legal representatives need to weigh carefully what is in their clients’ interests.”
Lloyds declined to comment.
