UK lenders, including Lloyds Banking Group, have been implicated in a motor finance scandal involving 'advance commissions' paid to car dealers, which may result in consumers facing higher loan costs.

This scandal intensified following a court ruling in October 2024 that deemed secret commission payments to car dealers unlawful, prompting a broader investigation by the Financial Conduct Authority (FCA).

Despite their evidence being rejected at the Supreme Court, Consumer Voice's co-founder Alex Neill pointed out the significant advance commissions received by car dealers, highlighting widespread consumer overcharging.

Consumer advocacy group Consumer Voice has raised alarms over advance commissions in filings aimed at intervening in a crucial Supreme Court case that will address compensation related to the scandal.

Court documents reveal that these undisclosed advance commission arrangements create conflicts of interest, potentially pushing customers into more expensive financing options.

These advance commissions are typically paid upfront in lump sums, amounting to millions of pounds, which incentivizes dealerships to favor certain loan providers without considering the financial impact on borrowers.

Lloyds' motor finance division, Black Horse, continued to offer advance commissions to dealerships until at least April 2024, while Santander UK still provides them, and Barclays previously did so before closing its motor finance division in 2019.

The Financing and Leasing Association (FLA) contends that if advance commissions were indeed a type of commission, the FCA would have addressed them in its investigation, emphasizing the need for consumers to receive adequate information for informed decision-making.

Sharon Bowles, a member of the Lords financial services regulation committee, has called for further investigation into advance commissions, citing a lack of moral oversight in their continued use.

Close Brothers and FirstRand are currently seeking to overturn a ruling in the upcoming Supreme Court hearing scheduled for early April 2025.

In light of the scandal, Santander UK has set aside £295 million for potential compensation, while Lloyds has earmarked an additional £700 million, totaling nearly £1.2 billion, though the overall financial impact remains uncertain.

The ongoing motor loans scandal, which has persisted for over a year, is estimated to cost lenders, including Santander UK and Close Brothers, around £44 billion, potentially rivaling the £50 billion payment protection insurance (PPI) scandal.