A complex mess generated by the Financial Conduct Authority over its compensation scheme for allegedly illegal motor finance commission payments looks like having no resolution in sight.
The FCA now reckons pay-outs could be due on about 14 million “unfair” deals, representing something like £700 each. And it estimates that around 44% of all motor finance agreements made between 2007 and 2024 could be eligible, even though a ruling by the Supreme Court in August overturned much of the reach of many of these cases from an earlier Court of Appeal decision.
Nevertheless, aggrieved lenders are increasingly having to splash their cash after the FCA’s latest claim that motor finance mis-selling would cost affected banks £11bn. The Close Brothers motor finance banking operation has just said it expected to take an additional charge of £135m, on top of an initial provision of £165m. Close Brothers said the increased allowance reflected the “greater likelihood” that more historical cases would qualify for compensation, as well as the possibility of higher compensation levels than anticipated. Meanwhile, Lloyds Banking Group, the UK’s biggest provider of motor and motorcycle finance via its Black Horse business, is now preparing for a “best estimate” of total redress costs hitting £1.95bn.
However, criticism of the FCA is mounting. South African bank FirstRand, which operates in the UK as MotoNovo Motor Finance, has complained that the FCA compensation scheme appears to have gone far beyond its “expectations of what can be considered proportionate or reasonable”. The FTSE 250 group is also a leading critic of the regulator, remarking: “it doesn’t believe the FCA’s proposed redress methodology appropriately reflects actual customer loss or achieves a proportionate outcome.” And the Finance and Leasing Association, which represents lenders across the motor industry as a whole, insists that the FCA is “over-compensating”.
BMW executives are also reportedly seeking an urgent meeting with the Treasury to raise concerns about the FCA compensation plans. These will apparently threaten a £207m hit for the brand’s in-house finance arm, presumably impacting both motor and motorcycle loan provision. Renault has put aside £74m to tackle the cost burdens of the scheme. Quite what funding availability for motor and motorcycle purchases will look like once this FCA wrecking episode has concluded is anybody’s guess.