A leading South African lender is preparing to withdraw from the UK market after a dispute over customer compensation tied to a nationwide car finance scandal. The decision follows regulatory changes that have reshaped the scale and scope of payouts to affected borrowers.
The move highlights growing pressure on financial institutions as the UK enforces a sweeping redress scheme. While some firms say they can absorb the costs, others are reassessing their long-term presence in the market.
FirstRand, one of the largest financial groups in South Africa, confirmed plans to exit its UK motor finance operations after sharply increasing provisions for compensation. According to Bloomberg, the bank has set aside £750 million to cover claims from customers who were mis-sold car loans.
The development comes as the Financial Conduct Authority (FCA) finalizes a compensation framework expected to affect millions of agreements. The regulator has estimated that around 12.1 million loans will qualify for redress, with average payouts of approximately £829 per agreement.
Regulatory overhaul reshapes compensation landscape
The FCA’s intervention follows years of scrutiny into discretionary commission arrangements, where car dealers were incentivized to increase interest rates on loans. According to the regulator, this practice led to widespread unfair treatment of consumers across the market.
Initially, the FCA estimated that 14.2 million agreements could be considered unfair. That figure has since been revised down to 12.1 million after eligibility criteria were tightened. According to the FCA, the adjustment is intended to ensure that only those who were clearly treated unfairly receive compensation.
The total cost of the scheme has also been revised. Industry-wide payouts are now expected to reach about £7.5 billion, down from earlier estimates of £8.2 billion. Additional administrative costs bring the broader financial impact even higher.
FirstRand has been particularly critical of the framework. The bank stated that the redress plan “significantly and inappropriately diverges” from a prior UK Supreme Court ruling, which found that compensation should apply primarily to the most serious cases of misconduct.
As a result, the lender said continuing its UK consumer finance operations no longer fits within its risk tolerance. It is now pursuing what it described as an “orderly ownership transition” of its UK business, which includes Aldermore and MotoNovo Finance.
Industry response varies as firms assess financial exposure
While FirstRand is stepping back, other lenders appear more prepared to absorb the financial impact. Close Brothers, a major UK-based provider of car finance, said it expects to manage compensation costs of around £320 million without significant disruption.
The firm is continuing to evaluate the implications of the FCA’s plan and will provide updates as needed. This contrasts with FirstRand’s decision to exit, underlining differing strategies across the sector.
The broader industry has already set aside billions to deal with potential claims. Total provisions linked to the scandal have reached significant levels as banks respond to both regulatory requirements and legal developments. The issue centers on loans issued between April 2007 and October 2024, a period during which millions of consumers may have been affected. The FCA reviewed approximately 32.5 million agreements as part of its analysis.
Public figures have also weighed in on the compensation process. Financial commentator Martin Lewis has urged consumers to come forward, stating that the only way to determine eligibility is to file a complaint.
The regulator has confirmed that customers who have already submitted complaints, or who do so within the designated timeframe, will receive compensation sooner. According to the FCA, there is nothing preventing lenders from beginning payouts immediately under the finalized rules.
