Vanquis warns of £7m motor finance hit if FCA does not change course
Vanquis Banking Group has warned it may be forced to hike provisions for the motor finance scandal to £7m if the financial watchdog does not switch lanes on its redress scheme.
The specialist lender said it recognised a £3m provision in its third-quarter results, which follows the Financial Conduct Authority (FCA) pledging an industry-wide redress scheme for car mis-selling.
But the bank cautioned if the watchdog does not change direction it may be forced to record an extra £4m provision “primarily due to increased operating costs associated with customer outreach”.
The FCA laid out the foundations for its industry-wide redress last month, where lenders are expected to be on the hook for £11bn.
Vanquis said it did not historically participate in discretionary commission arrangements – ‘secret’ deals with car brokers that sit at the heart of the scandal – and added it may “rebut” cases by demonstrating consumers could not have achieved better deals.
The firm was hit with a storm of complaints in the last year, driven by claims management companies, as the motor finance scandal accelerated.
The cost of dealing with grievances related to the company’s historic lending practices soared and took a chunk out of the company’s bottom line last year with fees to the ombudsman rising to £24.8m from £8.1m.
Vanquis joins peers in raising provisions
Vanquis’ update comes as lenders across the board hike their provisions.
Lloyds raised its funds set aside to £2bn, whilst Barclays near-quadrupled provisions to over £300m.
Santander UK pulled the plug on its third quarter results last week citing motor finance uncertainty as bank chief Mike Regnier called for the government to actively consider stepping in.
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.”
On the other side of the aisle, a fresh report from the All-Party Parliamentary Group (APPG) on Fair Banking has blasted the City watchdog for a “£4.4bn billion gap” in the proposed scheme.
The group accused the regulator of being “influenced by the profit margins of the lenders”.
The Financial Conduct Authority has said it “proposed a scheme to fairly compensate motor finance customers in a timely and efficient way”.
“We recognise that there will be a wide range of views on the scheme and not everyone will get everything they would like.”
Elsewhere, Vanquis recorded an eight per cent gain in total interest-earning balances.
But the firm’s net interest margin – a key metric for a bank’s profitability from lending – shrank 40 basis points quarter-on-quarter and 170 year-on-year to 17 per cent.
Vanquis’ CET1 ratio, which indicates its financial health, also took a 110 basis points hit to 17.4 per cent in the quarter.