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Nov 20, 2024 at 7:38 AM
Roula Khalaf, the Editor of the FT, handpicks her beloved stories in this weekly newsletter. It offers a unique glimpse into the world of finance and news. Santander UK has taken a significant step by setting aside £295mn to handle the potential costs arising from a British court ruling on unlawful commissions paid to car dealerships. This move has made Santander the largest institution to make such a provision since the Court of Appeal's ruling last month on the mis-selling of car loans. The figure was disclosed along with Santander UK's full third-quarter results, which the bank postponed last month to accurately calculate the potential cost of the decision. The court's ruling emphasized that it is illegal for banks to pay a commission to a car dealer without obtaining the customer's informed consent. This increased the likelihood that the Financial Conduct Authority, the UK regulator still investigating potential mis-selling, will establish a costly redress scheme for lenders. Analysts have estimated that the entire motor financing industry could face up to £23bn in redress and legal costs, affecting lenders like Santander and Lloyds Banking Group. Lloyds, which owns Black Horse, the UK's largest motor finance provider, had already set aside £450mn to cover the potential costs of the car loan probe in February. This situation echoes the massive £50bn payment protection insurance (PPI) scandal, where the industry-wide mis-selling of cover for credit card and loan repayments became a costly problem for banks. Santander stated that its £295mn provision "includes estimates for operational and legal costs and potential awards, based on various scenarios using a range of assumptions." It further added, "There are currently significant uncertainties regarding the nature, extent, and timing of any remediation action if required, and the ultimate financial impact could be significantly higher or lower than the amount provided." The FCA's probe focuses on the historical use by lenders and brokers of now banned "discretionary commission agreements" on car loans. Under this practice, the fees earned by the dealer were tied to the interest rates paid by customers. The lenders affected by the court's judgment have indicated their intention to seek permission to appeal against it in the UK's Supreme Court, as noted by Santander. Despite the impact of the provision, Santander UK said its CET1 capital ratio increased in the third quarter to 15.4 per cent, with the provision amounting to 19 basis points. It emphasized, "We remain well capitalized with significant buffers over regulatory requirements."
