Santander UK Increases Compensation Provisions Amid Car Finance Scandal

The mounting scandal over mis-sold car loans has compelled Santander UK to raise the amount it has allocated for potential compensation to motorists, now exceeding £460 million. Initially, the bank had set aside £295 million for its redress costs. In its annual results, Santander reported an increase of £183 million in provisions, preparing for the anticipated finalisation of a compensation scheme by the City regulator.

This scandal is poised to be the most significant redress issue to affect Britain’s financial sector since the payment protection insurance debacle. Millions of motorists are expected to receive some form of compensation, stemming from undisclosed commissions paid to car dealers for arranging finance on vehicle purchases. A surge in consumer complaints led the Financial Conduct Authority to initiate an extensive investigation into the market two years ago.

Last October, the regulator announced plans to enforce compensation payments. It estimated that the proposed scheme could distribute £8.2 billion in redress, imposing additional costs of £2.8 billion on the industry. This has elicited strong reactions from finance providers, including Santander UK’s outgoing chief executive, Mike Regnier. He argued that the FCA’s approach was disproportionate.

In light of these developments, banks and the finance arms of car manufacturers have begun to increase their financial reserves to cover potential redress costs. This trend includes Lloyds Banking Group, which has now provisioned nearly £2 billion in anticipation of claims arising from the scandal.

The uncertainty surrounding the FCA’s compensation rules caused Santander UK to cancel the publication of its third-quarter results last autumn. Its increased provision reflects a growing likelihood of a higher number of cases deemed eligible for redress than previously estimated. The bank has acknowledged the possibility that remedies may extend beyond merely reversing negative financial impacts caused by unfair relationships.

As the scandal unfolds, there has been a notable increase in activity by claims management companies and law firms, seeking to capitalise on the situation. Regulatory bodies have responded by cracking down on misleading practices among claims firms, emphasising that consumers should not have multiple representatives for the same claim and should not face excessive termination fees.