Banks Rocked by ‘Extreme’ Car Loan Costs Gear Up for FCA Fight
Insurance Journal·2025-10-27 16:02

Core Viewpoint - The UK's major banks are preparing to contest regulatory decisions regarding compensation for consumers affected by mis-sold car loans, despite having set aside an additional £1.5 billion for this issue [1]. Summary by Sections Compensation Provisions - Barclays Plc has significantly increased its compensation provisions, quadrupling the amount set aside for affected customers [2]. - Lloyds Banking Group Plc reported a 36% decline in pre-tax profit for Q3 due to an additional £800 million charge related to the scandal [2]. Regulatory Response - The Financial Conduct Authority (FCA) has proposed a redress program that some banks, including FirstRand Ltd. and Banco Santander SA's UK unit, believe exceeds reasonable expectations [3][4]. - Secure Trust Bank Plc criticized the FCA's approach as extreme and not reflective of a recent Supreme Court ruling that was seen as favorable to lenders [4]. Industry Impact - The FCA's proposals could lead to the car finance industry facing a total bill of £8.2 billion for undisclosed charges, in addition to £2.8 billion for running the refund program [6]. - Smaller lenders, such as Close Brothers Group Plc and Bank of Ireland Group Plc, are also increasing their provisions in response to the scandal [7]. Legal Considerations - Lloyds and Barclays have not ruled out potential legal challenges against the FCA's plans, focusing on engagement during the consultation period [9]. - FirstRand has indicated that the future of its UK unit may depend on the FCA's redress program, arguing that the regulator's definition of unfair treatment does not align with recent court rulings [10]. Future Expectations - There is a notable gap between the FCA's estimated compensation payouts and the amounts that lenders have publicly set aside, with some firms optimistic that the final rules will be moderated [12]. - Analysts suggest that the FCA may need to adjust its approach in the final redress scheme expected later this year [13].