Santander attacks car finance redress scheme as it scraps UK results

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Santander has scrapped publication of its full UK results, as it attacked a compensation scheme for consumers who were mis-sold car finance and warned the £11bn plan would put jobs and the supply of credit at risk.

The Spanish bank pointed to “uncertainties” around the redress scheme as it said on Wednesday that it would not publish third-quarter results for its UK subsidiary.

The Financial Conduct Authority, which is consulting on the redress scheme, has estimated that the mis-selling scandal will cost lenders £11bn, a figure that would make it one of the biggest compensation bills to hit the industry.

Several lenders have already taken large provisions in anticipation of payouts, including Lloyds Banking Group, which has set aside almost £2bn. Santander, which in July bought high street lender TSB for £2.7bn, previously set aside £295mn but has yet to update its estimate to reflect the FCA’s proposals.

Mike Regnier, Santander UK’s outgoing chief executive, said: “We believe that the level of concern in the industry and market is such that material changes to the proposed FCA redress scheme should be an active consideration for the UK government.

“Without such change, the unintended consequences for the car finance market, the supply of credit and the resulting negative impact on the automotive industry and its supply chain could significantly impact jobs, growth and the broader UK economy.”

Santander’s criticism of the scheme is the latest push by the industry to dilute the FCA proposals. Banks have argued that the scheme is too extreme and does not reflect the actual loss suffered by consumers who were not properly informed that car dealers who sold them loans were receiving commission from lenders.

The UK government has been following the mis-selling controversy closely, with chancellor Rachel Reeves warning earlier this year that significant payouts to consumers could have a chilling effect on banks, stunting growth and harming Britain’s attractiveness to investors.

The cost of car finance compensation was initially estimated at £44bn but was reduced after a Supreme Court ruling in August limited its scope.

By scrapping its UK results announcement Santander has gone a step further than 12 months ago when it delayed publication before setting aside £295mn to cover potential car finance compensation costs. That figure is expected to rise if the FCA proceeds with its proposed redress scheme.

The bank said on Wednesday that it expected to provide an update on the cost of the FCA redress scheme in its fourth-quarter results.

It added that it did not expect that any increase to the £295mn it has already set aside “would have a material adverse impact” on its financial position.

Santander published its group-level results as scheduled on Wednesday. It is not required to provide detailed quarterly figures for its UK operations but normally does so.

In its group results, Santander said third-quarter revenues in its UK business fell 3.5 per cent year-on-year to €1.3bn. Net operating income remained broadly flat at €629mn.

Group net income rose 8 per cent compared with the same period last year to €3.5bn, a sixth consecutive record quarter. The Spanish lender was boosted by a strong performance at its US business, while loan loss provisions remained stable.

The FCA has rebuffed banks’ criticism of the planned redress scheme.

“We believe a compensation scheme is the best way to settle, for both lenders and consumers, liabilities that exist no matter what,” the FCA said in a statement. “Alternatives would cost more and take longer. It’s vital we draw a line under the issue so a trusted motor finance market can continue to serve millions of families every year.”

Additional reporting by Martin Arnold in London

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