More than a million motorists may have been mis-sold a car loan. Now the FCA is warning lenders and financial advisers to set aside enough cash to compensate drivers.

It has been reported that in a letter to lenders yesterday, the Financial Conduct Authority said that it would use its “regulatory rules” against firms that appeared to be attempting to “avoid potential future liabilities”.

In the meantime, about 17,000 people have already made complaints to the Ombudsman.

The cases surround commission arrangements between lenders and car dealers. Some lenders had allowed dealers to adjust interest rates, which would improve the commission they received. As a result, these arrangements created an incentive for brokers to increase how much people were charged for their car loans (“Discretionary Commissions”) which were banned by the regulator in January 2021.

In February, banking giant Lloyds said it had set aside £450m to cover the potential cost of the investigation. Lloyds is seen as the most exposed of the major banks to any of these claims as it owns one of the UK's largest motor finance providers, Black Horse.

Barclays, meanwhile, is challenging a ruling that it unfairly paid a commission to a car finance broker where it was ordered to pay £1,327.00 in compensation to a customer because of a hidden commission in her five-year £13,000.00 financial deal. This challenge could hold up the process for customers awaiting the Ombudsman's decision.

The FCA has faced issues getting the necessary information from various companies to conduct its investigation. It previously paused the 8-week response deadline that providers had to respond to complaints and also lengthened the time available to take a complaint to the FCA from 6 months to 15 months. However, as the situation unfolds, Barclay’s challenge and the FCA’s lack of data means that the regulator may find itself in a position of having to extend these deadlines further.