The Financial Conduct Authority (FCA) has issued a directive to UK banks, urging them to be prepared for the financial implications of customer complaints that may arise from its ongoing investigation into the motor finance sector.
The FCA’s scrutiny, initiated in January, focuses on possible overcharging practices and contentious commission models that have escalated disputes between numerous consumers and lending institutions.
In its recent communication, the FCA advised bank executives to evaluate their financial readiness to handle potential liabilities that could emerge from an increase in customer complaints linked to the review.
While the regulator plans to announce further actions in September, it has noted some challenges with data provision from certain firms and is considering extending the investigation period if necessary.
The situation has been further complicated by a judicial review initiated by Barclays against an ombudsman’s decision regarding a motor finance complaint.
This legal action introduces additional uncertainty and may influence the review’s timeline, the FCA noted.
In the meantime, the FCA has recommended that lenders continue processing and resolving complaints. This proactive approach aims to expedite resolution once the review concludes.
Several banks have already earmarked funds to address potential claim costs.
Notably, Lloyds, the UK’s largest domestic bank, allocated 450 million pounds (approximately $564 million) for this purpose, as reported in its February financial results.
Industry experts, including analysts at RBC, have projected that the total compensation costs for the motor finance sector could reach up to 16 billion pounds.
If these estimates hold, this issue could rival the PPI scandal in terms of financial impact on the banking industry.
This anticipated financial burden underscores the scale of potential overcharging and mismanagement issues within the motor finance arena, highlighting the importance of rigorous regulatory oversight and preparedness by financial institutions.