FirstRand warns UK’s car loan redress goes beyond expectations

FirstRand said a new proposal by the UK for compensating consumers who were missold card loans that could end up costing lenders £11 billion (R251 billion) goes beyond what it previously expected would be a reasonable outcome.

What the Financial Conduct Authority (FCA) determined was unfair treatment doesn’t align with a recent Supreme Court ruling on the matter, FirstRand argued in a statement. Africa’s biggest lender by value plans to consult with the agency as soon as possible.

For its analysis, the FCA reviewed 32.5 million motor finance agreements that consumers entered into between April 2007 and October 2024. It estimated that 14.2 million of those – or 44% – would be considered unfair.

“Whilst 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,” FirstRand said.

The redress program is going ahead after the UK’s top court in August handed lenders a major reprieve, finding that banks should only pay compensation where the most serious abuse is found. The new details came after the FCA spent weeks consulting with lenders, law firms and other industry participants about how customers who were missold car loans should be compensated.

FirstRand was one of the lenders named in the cases before the Supreme Court. Chief Executive  Mary Vilakazi has previously said the fate of its UK unit could rest on the regulator’s ruling over compensation.

“If we have to pay material amounts in the redress scheme, then we don’t have resources for lending and that puts us out of the market,” Vilakazi said in a Bloomberg Television interview last month.

FirstRand was brought into the case through its MotoNovo unit in the UK, which it acquired in 2006. The company now commands about 10% market share in car finance in Britain. The lender’s overall business in the UK comprises about 10% of its earnings and about 20% of its balance sheet, it has said previously.

The £11 billion price tag was lower than the midpoint of a range the watchdog previously provided. Lenders across the UK have spent months adding to provisions to help fray the potential costs of the redress program. Analysts at Keefe, Bruyette & Woods said they “see little likelihood of incremental provisions” from some of the country’s largest banks.

Johannesburg-based FirstRand has already set aside R5.8 billion to cover any provisions and other related expenses for running the program. As of last month, Vilakazi said she did not plan to add any more to that figure.

BLOOMBERG