Sign in Subscribe
Automobile loans

Motor Finance Lenders Clash with FCA Over Compensation Scheme for Ripped-Off Car Owners

Strategic Insights

— 1 min read

A contentious dispute is unfolding between motor finance lenders and the Financial Conduct Authority over the regulator's proposed £11 billion compensation scheme for car owners who were misled when purchasing their vehicles up to 18 years ago. The lenders are seeking an extension of the consultation period on the compensation payouts, which average £700 and affect an estimated 14.2 million car owners. Despite the lenders' efforts, the FCA has refused to budge, stating that a prolonged consultation would only delay compensation for consumers. Lenders, including Lloyds Banking Group, Close Brothers, and FirstRand, have already set aside significant provisions for potential payouts, ranging from £2 billion to £325 million.

Key Takeaways:

  • The FCA's proposed £11 billion compensation scheme aims to compensate car owners who were misled when purchasing their vehicles between 2007 and 2024.
  • An estimated 14.2 million car owners may be eligible for compensation, with average payouts of £700.
  • Lenders, including Lloyds Banking Group, Close Brothers, and FirstRand, have set aside £2.3 billion for potential payouts, with some increasing their provisions in response to the FCA's consultation.
  • The FCA has rejected the lenders' request to extend the consultation period, citing the need to move at pace and compensate consumers quickly.
  • The lenders are concerned that without a sufficient consultation period, they will not be able to clearly set out their concerns about the scheme, which some argue may involve paying out compensation to customers who did not incur losses.
  • The lenders have the opportunity to appeal and are considering appointing lawyers to advise on their options.
  • The FCA has stated that a traditional three-month consultation period would have been prejudicial to the interests of consumers.

Statistics:

  • Estimated number of car owners eligible for compensation: 14.2 million
  • Average payout per eligible car owner: £700
  • Total compensation package: £11 billion
  • Lenders' provisions for potential payouts:

+ Lloyds Banking Group: £2 billion

+ Close Brothers: £300 million

+ FirstRand: £240 million through its exposure via Aldermore bank

+ Barclays: £325 million (increased from £90 million)

+ Santander: expected to bolster its £295 million provision for the UK debacle

Sources:

  • Bloomberg ()
  • The Financial Times ()

Read more