FCE makes £61m provision for mis-sold car finance

Captive finance company Ford Credit Europe (FCE) has become the latest motor finance lender to announce it has set aside funds to cover any compensation due for mis-sold car finance arrangements, noting a provision of £61 million in its recently published 2024 accounts.

The move comes in the wake of last year’s Court of Appeal decision on commission disclosure which was challenged in the Supreme Court earlier this month.

In the notes to its accounts, FCE said it ceased using any discretionary commission arrangements (DCAs) from 2018, and that up to that time the use of the DCA model had been substantially limited to used vehicle retail finance agreements.

Wider impact

DCAs are the subject of a Financial Conduct Authority (FCA) investigation which was launched in January last year, but has yet to publish its findings, pending a slew of legal cases, most notably last October’s Court of Appeal ruling.

FCE points out that this goes wider than the FCA’s original investigation, in stating that payments of commission to dealers were unlawful in circumstances where the amount and calculation of the commission were not fully disclosed to customers, to enable them to provide their informed consent.

This ruling could potentially impact all commission arrangements with dealers (DCAs and non-DCAs) where the amount of commission has not been disclosed.

“Economic outflow”

In common with other lenders, FCE says there remains a great deal of uncertainty pending the outcome of the appeal of the Court of Appeal decision to the Supreme Court, which is likely to be delivered in early July.

However, the FCA has said that if the Supreme Court concludes that motor finance customers have lost out from widespread failings by firms, then it is likely it will consult on an industry-wide statutory redress scheme within six weeks of the decision.

FCE’s accounts state: “In light of these events, a provision has been recognised based on probability-weighted scenarios utilising the Company’s internal data analysis, although there is still a significant level of uncertainty of the legal and regulatory outcome.”

The captive says the £61m provision reflects “the estimated economic outflow regarding historical commission arrangements. The estimation of this amount requires significant judgment.”

FCE Bank has about 436,000 retail customers in the UK, Italy, France and Spain, and its car finance lending totalled £12 billion as of the end of December.

Other banks with significant exposure to car finance have also announced provision for potential compensation payments, should the Supreme Court endorse the Court of Appeal’s decision. They include Lloyds Banking Group, which has put aside £1.15 billion and Santander UK, which has earmarked £295 million, while Close Brothers has estimated the group’s total operating expenses for this financial year will be impacted by approximately £200 million in direct and indirect costs associated with the motor finance commissions uncertainty.

High-level workshop

Asset Finance Connect, in partnership with Shoosmiths, is hosting a high-level workshop on 28th April to help senior motor finance lenders prepare for the potentially industry-shaping Supreme Court decision expected this summer.

The workshop – Commissions & Redress: What Auto Lenders Must Do Now to Stay Ahead – is free to attend and will take place at Shoosmiths’ London offices from 1–5pm, with a working lunch.

“Our goal is to give lenders the clearest possible view of what’s ahead, and the best chance of preparing now to deal with it.”

To register, please email louiseclavey@finance-connect.com. For queries about the workshop, contact wayne.gibbard@shoosmiths.com.