Business
UK car finance redress plan puts 2026 payout in jeopardy, sources say
UK car finance redress plan puts 2026 payout in jeopardy, sources say
About this update from Firstrand Limited
By Kirstin Ridley, Phoebe Seers and Tommy Reggiori Wilkes Compensating British consumers for mis-sold car loans could cost billions of pounds more than regulators have estimated, industry sources say, throwing into doubt plans for payouts in 2026 to resolve one of Britain's most expensive mis-selling scandals.The Financial Conduct Authority published a consumer compensation proposal in October that it estimated would cost lenders about 11 billion pounds ($14.8 billion), prompting companies such as Lloyds LSE:LLOY, Barclays LSE:BARC and Close Brothers LSE:CBG to increase the level of funds they set aside.But the FCA's methodology for calculating costs, which includes a broader-than-expected definition of what constitutes an unfair loan and a lower-than-expected bar for excessive commissions, has inflated the industry's bill, the sources said, with two floating estimates of closer to 18-20 billion pounds.Unless the regulator recasts its proposals, it is likely to face a costly and time-consuming legal challenge, the two sources and two other industry figures said, declining to be named because of the sensitivity of the subject.While the sources say lenders are not expected to make public their estimates, they will raise objections in responses to an FCA consultation that closes on Friday.The dispute over the scale of the scheme spells uncertainty for lenders and their final provisions. The compensation scheme is also a test for the FCA, under pressure from Britain's Labour government to support economic growth by easing the regulatory burden on financial services. REGULATOR WANTS TO START PAYOUTS NEXT YEARA spokesperson for the regulator, which wants to finalise plans by end-March and start payouts next year, said it had "engaged extensively" through the consultation and that feedback would help it to refine its proposals and ensure the scheme was "fair and robust". "That's vital if we're to draw a line under this issue, with consumers fairly compensated and a motor finance market continuing to work well," the spokesperson said.The watchdog wants the industry to pay for inadequately disclosed commissions paid by lenders to motor dealerships and contractual ties between lenders and dealerships that it says incentivised brokers to raise rates on car loans.The 11 billion pound plan - 8.2 billion in redress and 2.8 billion in costs - is based on 85% of eligible...