UPDATE: Vanquis Banking Group has just announced it may face a staggering £7 million hit related to the motor finance scandal, unless the Financial Conduct Authority (FCA) swiftly revises its redress scheme. This urgent warning comes as the lender recognizes a £3 million provision in its third-quarter results following the FCA’s pledge for a comprehensive industry-wide redress scheme for car mis-selling.
The FCA’s recent framework indicates that lenders could be liable for up to £11 billion in compensation. Vanquis cautions that if the FCA does not adjust its approach, it may be forced to increase its financial provisions by an additional £4 million due to heightened operational costs linked to customer outreach and grievance handling.
The motor finance scandal, primarily involving undisclosed commission arrangements with car brokers, has led to a surge in complaints against Vanquis. In the past year, the costs associated with addressing these complaints have significantly impacted the company’s financial performance, with fees to the ombudsman skyrocketing from £8.1 million to £24.8 million.
This announcement is part of a broader trend in the banking sector, as other lenders are also ramping up their provisions. For instance, Lloyds has set aside £2 billion while Barclays has nearly quadrupled its provisions to over £300 million. Additionally, Santander UK recently suspended its third-quarter results due to uncertainties surrounding motor finance, with CEO Mike Regnier urging government intervention to prevent potential harm to the automotive industry and its supply chain.
In a critical report, the All-Party Parliamentary Group (APPG) on Fair Banking has accused the FCA of creating a £4.4 billion gap in the proposed redress scheme, suggesting the regulator has been unduly influenced by lenders’ profit margins. The FCA, however, maintains that its proposed scheme aims to fairly compensate affected motor finance customers promptly and efficiently.
While Vanquis reported an 8% increase in total interest-earning balances, the bank’s net interest margin—a vital profitability metric—dropped by 40 basis points quarter-on-quarter and 170 basis points year-on-year, settling at 17%. Furthermore, the bank’s Common Equity Tier 1 (CET1) ratio, an indicator of financial health, decreased by 110 basis points, now standing at 17.4%.
As Vanquis navigates these turbulent waters, the financial community will be closely monitoring the FCA’s next steps. With an industry-wide impact at stake, the urgency for a resolution has never been greater. Stakeholders are advised to watch for any announcements that could influence the future of motor finance redress and the broader economic implications for the UK.
