The Financial Conduct Authority (FCA) has proposed that carmakers' finance arms cover nearly half of the £11bn compensation bill for the motor finance scandal, leaving firms like Ford and Hyundai facing payouts of around £5.2bn. The regulator's consultation papers estimate that 'captive lenders' will account for 47% of redress, while banks will cover 51% and independent lenders the remaining 2%.
The FCA's proposed redress scheme, which aims to compensate drivers overcharged due to controversial dealer commissions, could cost lenders a total of £11bn, including £8.2bn in compensation and £2.8bn in running costs. Average payouts for 14m unfair loans are expected to be £700, with the total potentially rising to £12.4bn if all victims apply.
The size of carmakers' exposure has surprised experts, who had expected banks like Lloyds, Santander UK, and Barclays to bear the brunt. The FCA noted that carmakers are considered more resilient, with potential support from their groups, but acknowledged uncertainty over how they will absorb the costs.
The Financing and Leasing Association (FLA) has warned that large bills could disrupt the car finance market, leading to fewer or more expensive loans. Adrian Dally, the FLA's director of motor finance, criticised the FCA's approach as 'too broad to deliver fair outcomes'.
Some carmakers are already preparing for the scheme. Hyundai Capital UK set aside £34.5m for 2024, while Honda Finance Europe ringfenced £62.2m and BMW's financial arm allocated £200m. The FCA's 360-page consultation paper is still being reviewed by consumer groups and lenders, with concerns that some may challenge the proposals in court.
