Santander Demands Government Action: Urgent Call to Reform UK Car Finance Compensation!

This plea represents one of the most forceful critiques yet of the Financial Conduct Authority’s (FCA) redress scheme, designed to address issues in 14 million historical car loan agreements potentially deemed unfair due to commission structures between lenders and car dealers.

Owned by a Spanish bank, Santander UK has taken a strong stance, urging the government to advocate for significant amendments to the regulator’s current proposals, following a critical supreme court ruling in August that has led to a consultation period.

Mike Regnier, CEO of Santander UK, expressed his concerns, stating, “The level of concern within the industry and market is such that the government should actively consider significant modifications to the FCA’s proposed redress scheme.”

“Without changes, the unintended repercussions on the car finance market and credit supply could severely impact jobs, growth, and the larger UK economy, along with causing substantial harm to consumers,” Regnier added during a statement on Wednesday morning.

His remarks coincided with the bank’s decision to postpone the announcement of its UK financial results, citing the need for “greater clarity” on the FCA’s redress scheme and its potential effects on both Santander UK and the broader market.

However, the bank reassured on Wednesday that it does not anticipate any “material adverse impact” on its financial standing from the car finance compensation scheme, even under a “severe” scenario of increased payouts. Last year, Santander UK set aside £295 million to cover potential compensations to car loan customers.

Efforts by Chancellor Rachel Reeves to influence the outcome of the car finance scandal include her January intervention in the supreme court hearing, where she urged the judges to avoid awarding excessive compensation to borrowers. However, her efforts were ultimately dismissed by the court.

Subsequently, it was reported that the chancellor considered bypassing the supreme court’s decision with retrospective legislation to potentially save lenders billions of pounds, should the court have ruled in favor of consumers. Ultimately, the court mostly sided with lenders, and Reeves did not proceed with intervention.

While government action at this point would spark controversy, Regnier emphasized that it is Santander’s responsibility to protect the car loan sector. “As the FCA reviews the consultation results, we are committed to ensuring a fair and orderly outcome,” he stated.

“This issue isn’t about pitting investors against customers; it’s actually the opposite. At stake is the continuation of credit supply crucial for sustaining a vital economic sector,” he explained.

Lenders, claims companies, and legal teams are diligently working to respond to the extensive consultation documents before the mid-November deadline, keeping open the option to legally challenge the compensation scheme.

This includes auto manufacturers, whose finance divisions might have to cover nearly half of the compensation expenses. Mercedes-Benz recently announced setting aside €422 million (£371 million) for compensations, the largest provision by any car manufacturer so far. BMW and Honda have also reserved £207 million and £62.2 million, respectively.

The FCA commented, “We welcome thoughtful feedback on our consultation and have clearly outlined our rationale for the proposals. We believe a compensation scheme is the most effective resolution for both lenders and consumers, as alternatives would be costlier and more time-consuming.”

“It’s crucial to resolve this matter so that a trusted motor finance market can continue serving millions of families annually,” the FCA added.

A spokesperson for the Treasury stated, “The independent FCA has initiated its consultation, and it’s essential for all stakeholders to participate. We aim for this issue to be settled efficiently and orderly, ensuring certainty for both consumers and firms.”