Carmakers are under pressure to drum up \u00a33bn to cover payouts for motor finance scandal victims after failing to adequately prepare for a UK-wide compensation scheme that is due to begin this summer.<\/p>\n
Company filings show the lending arms of big vehicle manufacturers including Ford, BMW, Stellantis<\/a> and Volkswagen may have massively underestimated the final costs of the financial regulator\u2019s \u00a39.1bn redress scheme.<\/p>\n The Financial Conduct Authority (FCA), which released the final terms of its compensation plan last month<\/a>, has said about 42%, or \u00a33.8bn, of the total bill will be shouldered by carmakers\u2019 motor financing divisions.<\/p>\n However, manufacturers have collectively put aside just \u00a3803m. They will have to scramble to put together a further \u00a33bn needed to cover the bill, which will help compensate drivers who were mis-sold car loans between 2007 and 2024.<\/p>\n The compensation scheme is intended to draw a line under the scandal, in which drivers were overcharged for vehicle loans as a result of commission payments between lenders and car dealers. The FCA has estimated that victims will be in line for payouts worth \u00a3830 on average<\/a>.<\/p>\n Lenders embroiled in the scandal have heavily lobbied regulators and government officials over the past two years, saying that large compensation payouts could force some providers to withdraw loans or even collapse.<\/p>\n Carmakers\u2019 involvement has turned up the political heat, with ministers wanting to ensure manufacturers are not deterred from investing and creating jobs in the UK.<\/p>\n Anxieties over the potential fallout from a compensation scheme \u2013 which at one point was expected to come with a \u00a344bn bill \u2013 led to a string of controversial interventions, including the chancellor, Rachel Reeves, urging the supreme court<\/a> against awarding large payouts last year. Last summer, she also considered overruling the court <\/a>if it sided too closely with consumers.<\/p>\n Of the \u00a39.1bn compensation scheme, roughly \u00a37.5bn will go to customers in the form of redress payouts, while the rest will cover administrative costs including contacting victims, making payments and other general running expenses.<\/p>\n Lenders not tied to carmakers \u2013 including high street banks such as Lloyds, Santander and Barclays \u2013 are on the hook for 57% of the total bill.<\/p>\n But unlike car manufacturers, they are much more prepared, having already put aside \u00a33.9bn of the \u00a35.2bn bill they are likely to face.<\/p>\n