£61 Million and Counting: Ford Joins the Ranks in Car Loan Mis-Selling Crisis

Ford’s UK motor finance arm, FCE Bank, is the latest lender bracing for the financial fallout from the growing car finance mis-selling scandal making headlines.

The company has set aside £61 million to cover potential compensation claims, part of a wider reckoning that could see the motor finance industry pay out as much as £44 billion in redress.

The controversy stems from discretionary commission arrangements, which allowed brokers or car dealers to increase a customer’s interest rate in exchange for higher commissions. These agreements were banned by the Financial Conduct Authority (FCA) in January 2021, after the regulator deemed them unfair and detrimental to consumers.

Although FCE Bank ended the use of such commissions in 2018, the risk of retrospective claims remains. The company’s recent provision reflects the estimated cost it may incur if the FCA introduces an industry-wide compensation scheme, a possibility that’s now under serious consideration.

The Legal Backdrop

The issue intensified following a Court of Appeal ruling in October, which found that not only discretionary commissions, but any undisclosed commission, could be deemed unlawful. That landmark decision has been challenged and is now under review by the Supreme Court, which recently concluded a three-day hearing on the matter. The FCA has indicated it will await the Supreme Court’s final ruling before deciding on next steps.

Industry-Wide Repercussions

Ford is far from the only lender caught in the crossfire. Several major financial institutions are now scrambling to contain the potential damage.

Lloyds Banking Group

• Provision: £1.2 billion.
• Impact: Profits dropped from £7.5 billion to £5.97 billion in 2024.
• Details: The bank nearly tripled its provision to address potential compensation costs related to motor finance commission practices.

Santander UK

• Provision: £295 million.
• Impact: Pre-tax profits fell 38% to £1.3 billion in 2024.
• Details: The provision covers potential costs related to the industry-wide probe.

Close Brothers

• Provision: £165 million.
• Impact: Reported a £103.8 million loss for the six months to January 2025.
• Details: The bank suspended its dividend and initiated a comprehensive plan to raise £400 million, including the sale of its wealth management division to Oaktree Capital for up to £200 million.

Barclays

• Provision: £90 million.
• Impact: The reputational risk and potential for further legal exposure remain significant.
• Details: The bank has acknowledged that the final cost could differ materially from this figure due to the high level of uncertainty.

Bank of Ireland (via Northridge Finance)

• Provision: £142 million.
• Impact: 4% drop in pre-tax profit in 2024.
• Details: While the dip may seem modest on the surface, the size of the provision signals the seriousness with which Bank of Ireland is treating its potential exposure.

What Happens Next?

For now, the motor finance industry, as well as the millions of consumers potentially affected, awaits the Supreme Court’s decision.

If an industry-wide redress scheme is introduced, customers who were unaware of commission arrangements linked to their car finance deals could be entitled to compensation.

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