Ford on the hook for £61m in motor finance scandal
Ford has set aside as much as £61m as it becomes the latest company to be stung by the motor finance scandal.
The American car manufacturer’s subsidiary FCE Bank made the provision for its British motor finance division in its latest accounts.
The Essex-based FCE Bank said the provision reflected “estimated economic outflow” should a redress scheme come to fruition.
It added: “There remains significant uncertainty as to the extent of customer loss and the terms of any potential redress scheme.”
Ford joins top UK lenders including Lloyds, Santander and Close Brothers in bracing for what could be an explosive fallout.
The car mis-selling scandal has been brought into focus by the Financial Conduct Authority’s investigation into discretionary commission arrangements, which allowed brokers to effectively set their own interest rates.
The financial watchdog said this opened opportunities to overcharge customers through vague deals and forbade the use of DCAs in 2021, claiming it would save customers £165m a year.
Lloyds set aside £1.2bn in provisions
FTSE 100 giant Lloyds leads the pack for the steepest provision, with the firm earmarking nearly £1.2bn.
Santander has put aside £295m and Close Brothers £165m.
The case headed to the Supreme Court at the beginning of April, where Close Brothers and South African-based FirstRand sought to overturn the Court of Appeal’s ruling that it was unlawful for banks to pay a commission to a car dealer without the customer’s informed consent.
The FCA has pledged to conduct a sector-wide redress scheme within six-weeks if the judgment is upheld.
Ahead of the hearing, Shore Capital analyst Gary Greenwood told Morning Wire the hearing would “do little to calm investor nerves.”
“Consequently, share prices of those companies with exposure to the issue are likely to remain volatile until we have greater certainty on the outcome.”
Ford’s provision adds to a pot which RBC analysts predict could be north of £30bn if an adverse ruling is handed to lenders.
Should the saga steer towards downsides, analysts expect Lloyds’ total compensation, including interest and administrative costs, to reach £4.6bn.