Car finance scandal will be ‘significant’ hit to economy – Santander

The estimated £11billion in costs facing lenders over the car finance commissions scandal could have ‘significant’ ramifications for the British economy, Santander has warned.

Santander on Wednesday declined to publish its third quarter UK performance alongside group results in response to the Financial Conduct Authority’s proposed redress scheme.

And the group’s UK chief executive Mike Regnier said the plan ‘should be an active consideration for the UK Government’, warning current proposals ‘could significantly impact jobs, growth and the broader UK economy’.

UK banks and non-bank motor finance lenders have been vocal in their criticism of the regulator’s plan, which is expected to result in payouts for 44 per cent of all car loans agreed at a dealership for vehicles bought between 6 April 2007 and 1 November 2024.

Lloyds, which owns UK car finance giant Black Horse, has not ruled out taking legal action over the proposals.

However, some lawyers and consumer groups have accused lenders of attempting to frustrate fair compensation for the scandal.

Santander UK echoed comments made by rivals regarding a perceived different in the FCA’s approach compared to the legal clarity set out by a key Supreme Court ruling earlier this year.

It added: ‘The legal basis for the redress scheme’s relevant period is not clear and it remains at the consultation stage.

‘There is therefore uncertainty regarding the final scope, methodology and timing of any redress scheme that may ultimately be implemented.’

While other lenders have been forced to ramp-up provisions for potential payouts, Santander UK has not published an estimated figure.

However, the bank said that ‘even in a severe downside scenario’ it does not expect total costs to have ‘a material adverse impact on its capital or liquidity positions, operations, financial condition, or prospects’.

Regnier added: ‘We believe that the level of concern in the industry and market is such that material changes to the proposed FCA redress scheme should be an active consideration for the UK Government.

‘Without such change, the unintended consequences for the car finance market, the supply of credit and the resulting negative impact on the automotive industry and its supply chain could significantly impact jobs, growth and the broader UK economy. This could also cause significant detriment to the consumer.

‘While the FCA considers the outcome of its consultation, we believe it is our duty to do all we can to secure an orderly and fair outcome from this consultation process.

‘This is not a question of investor versus customer interest, quite the reverse. What is at stake is the supply of credit that customers need and that supports a very important sector for the economy.’

In response, an FCA spokesperson said: ‘We welcome considered feedback on our consultation and we’ve set out in detail our thinking behind the proposals. 

‘We believe a compensation scheme is the best way to settle, for both lenders and consumers, liabilities that exist no matter what. Alternatives would be more costly and take longer. 

‘It’s vital we draw a line under the issue so a trusted motor finance market can continue to serve millions of families every year.’