Motor finance provider faces administration amid £9bn redress fallout
Blue Motor Finance is reportedly on the verge of administration after a series of financial setbacks and pressures stemming from the City regulator’s planned £9bn motor finance redress scheme.
The independent motor finance provider is said to be facing a redress bill of over £50m, having lent over £1bn to over 120,000 customers – as reported by Sky News.
Big Four giant EY is lining up administrators as it scrambles to secure a rescue deal for Blue Motor Finance, but will oversee the insolvency process if a deal is not reached.
It was also reported that Shawbrook, the London-listed bank, had cancelled a ‘forward flow’ funding agreement with Blue Motor Finance earlier this year.
This news comes weeks after the Financial Conduct Authority (FCA) said it would launch a £9.1bn consumer redress scheme following a lengthy consultation after a headline-grabbing legal battle.
The initial proposals for the regulator’s scheme in October estimated that motor finance lenders would be slapped with a £11bn bill, but when it was revealed in March, that number dropped to £9bn.
Like all motor lenders, Blue Motor Finance has an alert on its website showcasing the redress scheme, but it is not clear how much of its lending activity was within the scope of the FCA’s compensation programme.
Legal battle on the horizon
The update on the finance provider follows last week’s revelation that Mercedes-Benz is among the four legal challenges lodged against the FCA.
The carmarker has thus far set aside £400m in payouts for the scandal, which relates to the use of ‘secret’ commission agreements between car dealers and lenders that left consumers in the dark.
The watchdog told Morning Wire that it had “received challenges from three lenders in addition to the challenge from Consumer Voice, represented by Courmacs Legal.”
Some of the major banks are not seeking to challenge the scheme. Lloyds Banking Group, which has set aside £2bn in payouts, said that whilst it was “disappointed”, it would not challenge the scheme. In addition to Santander, which raised its provisions to £640m, leading to a first-quarter profit hit, but also confirmed it will not challenge the scheme.