The UK’s biggest banks are gearing up for yet another fight with regulators over how they’ll compensate consumers who were missold car loans — even after they set aside an additional £1.5 billion to resolve the saga in recent weeks.
Barclays Plc on Wednesday said it had roughly quadrupled the amount of cash it has set aside to compensate customers who were impacted by the scandal. One day later, Lloyds Banking Group Plc saw its pre-tax profit in the third quarter slump 36% because of an additional £800 million charge tied to the matter.
More may lie ahead: After the Financial Conduct Authority’s unveiled its planned redress program, Johannesburg-based FirstRand Ltd. was quick to say the proposal went beyond what it previously expected would be a reasonable outcome. And Banco Santander SA’s UK unit has yet to disclose any change to the £295 million charge it previously took.
Read more: UK Car Finance Industry Faces $11 Billion-$13 Billion Mis-Selling Hit
Even as they took the additional provisions, multiple lenders have signaled they intend to fight the FCA’s plan. Secure Trust Bank Plc said the regulator’s approach was “towards the extreme end of the range of previously expected outcomes,” saying it fails to take proper account of a July Supreme Court ruling that many analysts believed represented a reprieve for lenders.
“As you have seen with increasing provisioning, the FCA’s current proposals break the link between loss and remedy,” said Adrian Dally, director of motor finance at the Finance & Leasing Association, a lobby group for the sector. “The FCA’s criteria for assessing liability is set so broadly that it would also compensate customers who suffered no loss at all.”
The FCA has defended its plan, saying its the quickest and most cost effective way to bring the yearslong saga to a close while giving certainty to consumers and businesses.
“We are open to well evidenced feedback during the consultation period,” the FCA said in a statement. “Recent court judgments show that liabilities exist no matter what. We believe our scheme is the best way to settle the issue for both consumers and firms, and alternatives would be more costly and take longer.”
Increasing Provisions
The charges are the most visible signs of the pain set to hit the wider car finance industry if it ends up shouldering the full £8.2 billion bill for what the FCA calls the industry’s “widespread failures to disclose” hidden charges to customers. That doesn’t even include the £2.8 billion cost of running the refund program, which the industry will also bear.
It’s not just big lenders that are impacted. Smaller lenders like Close Brothers Group Plc, Bank of Ireland Group Plc and Secure Trust Bank have also set aside more provisions this month.