A bank has said it will quit the UK in protest after an “unfair” scheme that will see its car finance compensation payouts soar to £750m.
FirstRand, which owns roughly a tenth of the UK car finance sector through MotoNovo, has vowed to abandon its UK operations as result of the City watchdog’s mass redress scheme for mis-sold car loans.
In a notice to shareholders, the South African bank said it would leave its motor finance operations in Britain because it no longer has the “risk appetite” for the UK.
The Financial Conduct Authority (FCA) finalised details of the scheme at the end of March, which FirstRand said were “disproportionate and unfair”.
The terms of the scheme mean FirstRand now expects its compensation bill to hit £750m, up from its previous estimate of £510m.
The firm’s announcement shows how the fallout from the car finance scandal is rocking the sector as millions of borrowers prepare to claw back compensation.
Around 12 million drivers will be entitled for an average payout of £829 under the FCA’s scheme, which will cost the car finance industry as much as £9.1bn.
This compensation is for customers who were sold car finance agreements in which dealers received a fee from lenders based on the interest rate charged on the loans.
The FCA, which banned these agreements in 2021, said these fees were rarely disclosed to customers and provided an incentive for dealers to charge higher interest rates than necessary.