How can lenders say car finance mis-selling caused no harm?

As the history and scale of car finance mis-selling in the UK have become clear, lenders have continued to advance a position that sounds superficially plausible. Even if a commission or contractual tie was not adequately disclosed, lenders argue that consumers knew the monthly payment and received the car they wanted, and therefore suffered no real detriment.

This narrative has persisted:

• through the Financial Conduct Authority’s (FCA) investigation, which began on 11 January 2024;
• as the Court of Appeal handed down its judgment in the Johnson, Wrench and Hopcraft test cases on 25 October 2024;
• following the Supreme Court’s decision in the test cases, handed down on 1 August 2025; and
• since the regulator published its redress scheme consultation paper, CP25/27: Motor finance consumer redress scheme, on 7 October 2025.

Senior industry figures have not been shy in expressing this position publicly. For example, Lloyds Banking Group CEO Charlie Nunn told Parliament’s Treasury Select Committee in May 2025 that the banking giant ‘don’t have evidence of harm, or that we’ve broken regulation’ in relation to its motor finance activities.

To understand why lenders say this, and why the argument is one of many that lenders have made that do not survive scrutiny, it is beneficial to separate:

• what lenders define as ‘harm’;
• the central questions that will determine whether mis-selling occurred or not; and
• what the FCA is trying to remedy with its redress proposals.

What lenders usually mean when they say ‘consumers suffered no harm’

Lenders saying ‘consumers suffered no harm’ is typically a narrow pricing claim dressed up as a broader defence.

The argument tends to run as follows:

• Any non-disclosure of commission was, at most, a procedural failing or technicality.
• The consumer could not and would not have obtained meaningfully cheaper credit elsewhere.
• Therefore, even if disclosure was inadequate, there was no actual financial loss.

This framing is attractive to lenders because it aims to collapse and remove the misconduct and non-disclosure of conflicts of interest that led to consumers not having an informed choice, and to focus the debate on a single, counterfactual question: could this customer have obtained cheaper car finance?

Why lenders’ ‘competitive rate’ defence is structurally weak

Even without knowing the facts of any one consumer's individual case, lenders' 'competitive rate' defence runs into a fundamental market-design problem. It was lenders that designed and shaped the market and product structures that allowed conflicted incentives to persist.

When commission structures such as discretionary commission arrangements (DCAs), which rewarded brokers for placing consumers into a higher-cost credit agreement by paying them a higher commission, were in place, the car finance market was not operating in a way that allowed consumers to discover the best deal. On the contrary, it was actively impairing the consumer's ability to compare financial products due to the non-disclosure of vital information and conflicted incentives.

Additionally, this lack of transparency fundamentally altered consumer behaviour. By presenting themselves as impartial intermediaries who were sourcing the best available option, brokers effectively discouraged consumers from shopping around. Consequently, many consumers did not search or stopped searching for credit in the misguided belief that the car dealer had already compared the market on their behalf.

As such, the relevant question is not whether the consumer could have obtained a cheaper deal elsewhere, which is easy to generalise and difficult to verify. The pertinent questions to ask are:

1. What rate was the lender willing to offer this customer without the conflicted incentive?
2. What would the customer have done if a lender or intermediary appropriately disclosed a commission or a tied relationship?

While the first question may appear hypothetical or difficult to answer, the Financial Ombudsman Service found in both DRN-418284 and DRN-4326581 that lenders would have been prepared to lend at a lower rate than the complainants in those cases actually received.

Regarding the latter question, the FCA itself has, at various times, asserted that consumers may have been more likely to shop around had they known about a contractual tie or commission. These assertions have also been supported by specific data, with Consumer Voice reporting in January 2025 that 49% of consumers who either found out about commission arrangements too late or did not know there was a commission at all would have considered shopping around for a better deal.

‘The consumer agreed the monthly payment’ is not an answer to unfairness

The argument that consumers understood and accepted the monthly payment and were therefore not harmed treats consent as if it exists in a vacuum. However, in a regulated consumer credit context, consent is not meaningful when the consumer is deprived of information that may alter their decision-making, particularly when the intermediary has incentives that do not align with the consumer's interests.

This matters because much of the misconduct under scrutiny is not a technicality or trivial issue, as lenders sometimes suggest. It is about whether consumers had all the information they needed to make an informed choice when the broker:

• stood to gain from a higher interest rate; or
• was not acting as an independent agent searching the market; or
• had undisclosed contractual ties that narrowed the consumer’s choice.

Why ‘informed choice’ matters legally

Fairness analysis is not confined to whether a borrower understands a headline price or can afford the monthly payment.

Under sections 140A to 140C of the Consumer Credit Act (CCA) 1974 (as amended), a court can rule that a relationship between a lender and a borrower can be unfair due to:

• any of the terms of the agreement or of any related agreement;
• the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement; or
• any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement).

* (the text of the CCA uses the pronoun ‘his’ to mean ‘his, her or their’)

These facts are relevant and matter in an investigation into alleged misconduct rooted in non-disclosure and conflicts of interest. If lenders or intermediaries did not adequately disclose material information about commission incentives or contractual ties, the consumer's agreement to a specific monthly payment does not, by itself, answer the legal question. The issue is whether the consumer was deprived of information that would have reasonably informed or influenced their decision-making in a way that rendered the relationship unfair.

This is why lenders cannot credibly turn this matter into a debate in which the burden of proof rests with the consumer to prove every counterfactual. Once a borrower alleges that the relationship is unfair, the Act places the burden on the lender to demonstrate otherwise. This legal context is partly why Johnson, Wrench and Hopcraft reached the Supreme Court, and why the FCA has built its redress proposals around more than the narrow ‘could the consumer have got a cheaper rate elsewhere’ argument that lenders have made.

Why do these narratives persist?

Framing the issue as a pricing technicality is strategically useful for lenders, allowing them to narrow reputational damage and position redress payments as exceptions rather than a structural market failing.

It also reflects the practical problem of attempting to rebut harm agreement by agreement. To do so would require reconstructing counterfactual pricing at scale across a substantial volume of historical agreements and relying on historic rate-setting, credit-tiering, and broker data that may be incomplete or no longer exist. The FCA recognises that complexity in its redress proposals, but this is also why some lenders and industry bodies claim that the regulator’s scheme will lead to ‘overcompensation.’

The ‘no harm’ narrative also matters in a lender-led scheme

One of the most significant concerns with the regulator’s redress proposals is that the scheme will largely be lender-led. This is relevant in the context of lenders’ ‘no harm’ narrative, because where lenders believe no harm has occurred, that may influence how lenders make decisions around:

• eligibility for redress;
• redress calculations; and
• how much explanatory detail they will provide to consumers.

Given that the regulator's proposed approach relies heavily on firms performing initial identification of affected consumers and calculations at scale, these factors may be particularly sensitive.

Lenders do not consider consequential harm and loss

While an overcharge on a single agreement may look modest, the downstream effects can be severe where households are already operating with little financial slack. Examples and signs of consequential harm and loss may include:

• a greater reliance on revolving credit to manage cash flow;
• arrears and fee cascades on essential bills;
• adverse credit file markers; and
• an ‘opportunity cost’ as funds that were paid to lenders via inflated interest rates were not available for essential expenditure or for contributing to a savings safety net.

Beyond these financial markers, there is also the stress and anxiety that consumers may have experienced due to the consequences of lenders’ alleged misconduct, which is not captured by debates about how much compensation consumers should receive or what rate of compensatory interest should apply to their redress awards.

For example, new figures published by the Money Advice Trust’s National Debtline service on 12 May 2025, during Mental Health Awareness Week, highlighted that people in debt are more than twice as likely to report ‘very poor’ mental health, while the National Debtline website also says that 50% of adults who are struggling with debt also have a mental health issue.

Lenders have created an evidence problem for themselves

It is easier for lenders to say that no harm has occurred than it is to prove that this is the case across a significant volume of motor finance agreements. However, the provisions that many lenders have made sit uneasily alongside their ‘no evidence of harm’ stance, particularly in the case of Lloyds Banking Group, which said in its Q3 2025 Interim Management Statement that it had now set aside nearly £1.95 billion in anticipation of its redress liabilities, despite maintaining that it may legally challenge the FCA’s final redress proposals.

While setting aside a provision is not, in itself, an admission of liability, it does signal that lenders anticipate a material probability of paying redress.

The truth is that ‘no harm’ is lenders’ strategic definition, not a factual endpoint

Lenders’ claims that no harm has been caused by their alleged misconduct focus on generic concepts and aim to treat a consumer’s acceptance of a monthly payment as if it resolves or renders void the questions about disclosure, conflicts of interest, and informed choice that the FCA is seeking to address in its redress scheme.

However, both the regulatory and legal positions are clear that if incentives were conflicted and material facts not disclosed, the outcome cannot simply be assumed to be 'fair' because the consumer, as lenders put it, 'got the car they wanted and were happy with their monthly payment.'

Register your motor finance claim with Harcus Parker

While the regulator’s proposed redress scheme means you can bring a motor finance complaint and receive your redress without instructing a solicitor and at no cost, there are many reasons why you may wish to seek professional assistance, including the potential for exploring additional claims and identifying additional financial loss, which we explore further in this separate guide.

You can register your motor finance claim with us here.