The UK’s biggest banks are gearing up for yet another fight with regulators over how they’ll compensate consu
mers who were missing 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 cus
Tomers who were impacted by the scandal. One day later, Lloyds Banking G
roup 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 unveiling its planned redress program, Johannesburg
-based FirstRand Ltd. was quick to say the proposal went beyond what it previously expected would be a reasonable o
ucome. 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
s 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 o
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f 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 an
d remedy,” said Adrian Dally, director of motor finance at the Finance & Leasing Association, a lobby group for the se
ctor. “The FCA’s criteria for assessing liability is set so broad that it wou
ld also compensate customers who suffer no loss at all.”
The FCA has defended its plan, saying its the fastest 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. “Rece
nt court judgments show that liability exists no matter what. We believe o
ur 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 reveal” hidden charges to cu
stomers. 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 has also set aside more provisions this month.