British banks have received a directive from the Financial Conduct Authority (FCA) to ensure that they are sufficiently prepared to cover the costs of any potential customer complaints that may arise from the FCA’s review of the motor finance industry.
The FCA launched an investigation into the industry in January due to increasing tensions between thousands of consumers and lenders regarding commission arrangements.
In a letter sent to bank executives, the regulator urged lenders to evaluate their ability to handle future liabilities that may arise as a result of an increase in customer complaints.
The Financial Conduct Authority has announced that it plans to provide an update on its next steps in September for its review of the motor finance industry. However, the FCA has reported that some companies are struggling to provide the necessary data, and as a result, it may extend its review if required.
In addition, Barclays (BARC.L) has started a judicial review against an ombudsman decision on a motor finance complaint. This has created uncertainty and may affect the timing of the FCA review.
The FCA has advised lenders to continue investigating any complaints they receive during this time, so they can be resolved promptly once the review is complete.
Some lenders have already allocated funds to cover potential costs arising from claims. Lloyds, Britain’s largest domestic bank, set aside £450 million ($564 million) in its February report.
Analysts at RBC estimated that the total compensation bill for the industry could reach up to £16 billion, making it the most expensive banking scandal since the widespread mis-selling of payment protection insurance (PPI).