FirstRand has been taken aback by the latest developments in the long-running UK car finance scandal, with the lender saying the long-awaited proposals for a compensation scheme covering millions of motor finance agreements went beyond the realm of reasonability.
“While more time is required to fully review the statement, the group’s initial view is that the scheme appears to have moved beyond the group’s expectations of what can be considered proportionate or reasonable,” Africa’s most valuable bank said on Wednesday.
“In addition, the presumptions of unfairness in the scheme in its current form do not appear to be applying the legal clarity provided by the recent UK Supreme Court ruling, which stated that unfairness should be assessed on a combination of multiple, specific facts.”
Shares in FirstRand were 4% weaker on Wednesday. The UK’s Financial Conduct Authority (FCA) said banks implicated in the scheme could face an £8.2bn compensation bill, which could go as high as £9.7bn.
FirstRand did not specify which aspects of the proposals it found wanting. However, the group, which has made a R3bn provision over the matter, said it will engage with the FCA “as soon as possible to better understand the above issues and also to gain clarification on some data inconsistencies included in the consultative paper.”
The lender has already spent more than R300m on legal fees on the matter.
The FCA estimates consumers would receive about £700 per agreement, on average. This after the regulator found that motor finance companies broke laws and regulations in force at the time by failing to disclose important information to consumers, leading to unfairness as consumers were denied the chance to negotiate a better deal.
The probe found that in some instances, consumers ended up paying more for their loan, with the FCA estimating that 44% of all motor finance agreements made since 2007 will be eligible for payout.
According to the FCA’s proposal, eligibility for the scheme would include motor finance agreements dating from April 6 2007 to November 1 2024, where a commission was paid by the lender to the broker.
Regulator urges swift resolution
FCA CEO Nikhil Rathi in a statement said the regulator wants to dispense of the matter quickly.
“Many motor finance lenders did not comply with the law or the rules. Now we have legal clarity, it’s time their customers get fair compensation. Our scheme aims to be simple for people to use and lenders to implement,” Rathi said.
“We recognise that there will be a wide range of views on the scheme, its scope, time frame and how compensation is calculated. On such a complex issue, not everyone will get everything they would like.
“But we want to work together on the best possible scheme and draw a line under this issue quickly. That certainty is vital so a trusted motor finance market can continue to serve millions of families every year.”
FirstRand’s UK motor finance company MotoNovo a year ago resumed new business origination after a temporary halt while it updated its processes in response to an investigation by authorities on commissions paid to dealers.
Another SA bank caught up in the sweeping investigations by the FCA is Investec, which has set aside £30m for potential compensation and other costs related to the FCA probe.
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