Bank of Ireland is likely to face a total redress bill of £220 million (€253 million) bill for its role in the UK motor finance commissions scandal, according to analysts, after the British financial watchdog published a paper on a planned consultation scheme.
That suggests the bank will need to increase its current £143 million provision for a redress plan, including administrative costs.
However, it is a fraction of some estimates of what the cost would be, before the UK supreme court moved in early August to overturn key parts of a shock court of appeals ruling on test cases last year. The lower court’s ruling had threatened to leave motor finance providers facing massive bills for compensation over commissions paid to car dealers.
The UK Financial Conduct Authority (FCA) said on Tuesday evening that it estimates the total cost of the redress scheme could come to £11 billion, with £2.8 billion of implantation and operational costs. This would result in estimated average compensation of £700 per affected motor finance agreement.
READ MORE
Bank of Ireland has a 2 per cent share of the UK motor finance market, suggesting it faces a £220 million final bill. RBC Capital analyst Benjamin Toms, who at one stage estimated that Bank of Ireland would need to set aside £950 million to cover costs, now forecasts a figure of £210 million.
However, he added there is still some risk that the final redress scheme gets challenged in the administrative courts. The consultation period is set to run for six weeks.
The FCA set up a review early last year into whether motor finance customers were being overcharged because of historical use of discretionary commission arrangements between car dealers and lenders. The examination covers 14 years before such arrangements were banned in 2021 in the market.
Discretionary commission arrangements involved lenders setting a minimum rate for car finance but giving brokers, typically forecourt salespeople, the discretion to set higher rates. Commission paid by the lender was linked to rates charged – meaning the higher the rate the car buyer pays, the more the broker gets.
The FCA had argued, however, that the London court of appeal went too far on a number of test cases, when it decided in October 2024 that motor brokers owed a fiduciary duty to customers.
The supreme court agreed with the FCA. The court’s president, Robert Reed, said in August that car dealers who sold the vehicles and arranged the finance did not owe fiduciary duties to customers.
