Santander UK tipped for ‘large’ hike to motor finance provisions
Santander UK is expected to top up its provisions for the motor finance scandal following the final outline of the financial watchdog’s redress scheme.
The Spanish-headquartered banking giant has been one of the most vocal critics throughout the scandal, which relates to the use of discretionary commission arrangements (DCAS) in car financing.
Banks were accused of leaving customers in the dark over secret commission deals. In August, the highest court in the land partially overturned a ruling from the Court of Appeal, that the use of DCAs were illegal.
The ruling opened the door for the Financial Conduct Authority (FCA) to introduce a redress scheme on the grounds of unfairness.
Santander had made a provision of £295m for the car mis-selling scandal ahead of the watchdog releasing its initial proposals for consultation in October. But following those proposals, banks with exposure to the market hiked their provisions to match the demands of the new scheme, which was expected to cost £11bn.
The bank would go on to top its provisions up to £461m in February.
Benjamin Toms, equity analyst at RBC, said: “Santander is the bank where there still might be a large top-up.”
A spokesperson for Santander said: “We are currently reviewing the FCA’s proposed redress scheme and assessing its impacts.”
High Court unlikely to accept another motor finance legal row
At the end of October, Santander UK said it would delay its third-quarter earnings report due to “uncertainty” following the redress.
The bank’s UK chief Mike Regnier 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.”
He warned if the government does not intervene “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.”
In April 2025, reports emerged that Santander was poisted to spin off its motor finance division as part of a major overhaul of UK operations. The bank sought approval from regulators to separate the division from the rest of its British business.
The FCA’s final scheme, released at the end of March, handed lenders a crucial reprieve with the overall costs set to come in at £9.1bn, lower than previously expected. Costs were slimmed after the number of qualifying agreements for the scheme dropped to 12.1m from 14.2m.
Both Lloyds Banking Group, which raised its provisions to £2bn in October, and Close Brothers, which is on the hook for around £300m, expected their current reserves to hold up.
Toms expects that one of the “interested parties” in the motor finance battle initiates another legal row following the redress scheme.
But he added: “Having seen the final rules, we now think it is unlikely that this legal challenge will be accepted by the High Court.”