FirstRand quits UK motor finance after £750m mis-selling blow

Key topics:FirstRand to exit UK motor-finance amid £750M compensation provisionFCA mandates billions in refunds; FirstRand disputes Supreme Court divergenceUK motor-finance exit may cut FirstRand’s earnings by up to 9%.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox every morning on weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Adelaide Changole.FirstRand Ltd. plans to exit its UK motor-finance business after saying it will raise a provision to cover compensation for clients over claims they were missold car loans in the UK to £750 million ($994 million).The South African lender has increased the amount by £510 million after the UK’s Financial Conduct Authority published its final redress plan for the saga at the end of March, it said Tuesday. Collectively, the industry has to pay about £9.1 billion overall to consumers, with 12.1 million loans eligible. Given the watchdog’s decision, the business case for a UK consumer-finance entity is “not within” FirstRand’s risk appetite and it will work to on “an orderly ownership transition” from Aldermore Group, which it bought in 2017. Companies in the UK’s motor-finance industry — including Lloyds Banking Group Plc and Close Brothers Group Plc — spent months arguing that the regulator’s proposals were too strict and failed to take proper account of last year’s Supreme Court ruling, setting aside billions of pounds to pay affected customers. .Read more:.FirstRand faces UK car loan redress uncertainty amid rising provisions.FirstRand reiterated its view that the FCA plan “significantly and inappropriately diverges” from the Supreme Court ruling and that it reserves its legal rights. The shares rose as much as 2.3% and had gained 0.6% to 87.18 rand by 4:25 p.m. in Johannesburg.Its provision is almost three times more than the £275 million of profit the group extracted from motor-finance activities from over a decade of lending in the UK, it said. The case centers around commissions that helped car dealers earn thousands of pounds for themselves while allowing banks to push up interest rates. After the UK Supreme Court examined issues with disclosures on the payments, it ruled in August that banks should only pay compensation where the most serious cases of abuse were found. About two months later, the Financial Conduct Authority revealed that some of the biggest auto lenders will have to spend £8.2 billion on refunds plus £2.8 billion in running costs for the program. A final review announced Monday estimates average redress per agreement at £829, and had reduced the total compensation to £7.5 billion in compensation, down from £8.2 billion previously estimatedFor 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.After originally setting aside £127.4 million in provision linked to UK car loans last year, FirstRand added £115.1 million to that in September. FirstRand can trace its involvement in the UK motor-finance industry back to 2006, when it acquired what is now known as its MotoNovo Finance business from Julian Hodge Bank. Today, the company commands about 10% market share in car finance in Britain.The lender’s overall business in the UK comprises about 10% of its company-wide earnings and represents about 20% of its balance sheet, FirstRand has said previously. .Read more:. UK markets don’t quite perform better under Labour: Merryn Somerset Webb.FirstRand now expects its full-year normalized earnings to contract as much as 9% after the motor provision, it said in a separate statement. Return on equity will be at or just below the bottom-end of its stated range of between 18% to 22%, the lender said. .© 2026 Bloomberg L.P.

FirstRand quits UK motor finance after £750m mis-selling blow

Key topics:

Related Stories