LONDON — South African banking group FirstRand plans to exit the UK motor finance market after raising provisions for car finance compensation to £750 million [1], highlighting the growing financial strain from the country’s car finance scandal.

The lender said the decision follows the Financial Conduct Authority (FCA) car finance redress plan [2], which has triggered a surge in car finance claims and PCP claims linked to alleged mis-sold car finance agreements. The group will pursue an “orderly ownership transition” of its UK business, Aldermore Bank, marking the first major withdrawal from the sector as costs escalate [3].

Rising costs from car finance claims

FirstRand increased its provisions by £510 million after the FCA confirmed details of its compensation scheme [4], bringing the total to £750 million. That figure is much higher than the estimated £275 million profit made from over ten years of motor finance in the UK. 

Lenders across the sector will pay out approximately £7.5 billion in car finance compensation – with total costs reaching up to £9.1 billion when including admin fees. Agreements for review now stand at approximately 12.1 million [5], down from previous estimates.

The FCA said the scheme is designed to address widespread car finance mis-selling, particularly where commission arrangements between lenders and dealers were not properly disclosed.

Commission structures at the centre of the scandal

The car finance scandal centres on payments made by lenders to car dealerships, which in some cases accounted for as much as 55% of the total cost of credit. Regulators and courts have said these arrangements may have incentivised higher interest rates, leading to potential consumer harm.

As a result, millions of motorists may be eligible for a car finance refund or PCP refund if their agreements are found to have been unfair. Some consumers already did a car finance refund check online to know their eligibility. The FCA has estimated average compensation at about £829 per agreement [6], with payouts 2026 expected once the scheme is fully implemented.

Business model under pressure

FirstRand said the scale of the provisions has made continued participation in UK motor finance unsustainable [7]. The group warned that additional capital would be required to support its MotoNovo Finance business, limiting resources available for growth.

“The business case for a UK consumer finance entity is not within the group’s risk appetite,” the bank said, citing regulatory and legal uncertainty around historic car finance claims.

The UK division accounts for about 10% of FirstRand’s earnings and roughly 20% of its balance sheet. The bank now expects full-year earnings to decline and returns to fall to the lower end of its target range.

Clash between banks and regulator

Banks have strongly criticised the FCA car finance scheme, arguing it goes beyond the findings of a UK Supreme Court ruling that limited compensation to the most serious cases of misconduct [8].

FirstRand described the programme as “deeply flawed” and said it “significantly and inappropriately diverges” from the court’s judgment. The group said it reserves its legal rights, raising the prospect of further challenges.

Other lenders, including Lloyds Banking Group and Close Brothers, have also set aside billions to deal with car finance claims and PCP claims while disputing aspects of the regulator’s approach.

Wider impact on the UK lending market

The decision to exit the market underscores concerns that the scale of car finance compensation could reshape the UK’s consumer lending sector.

Analysts warn that rising costs and regulatory risks may reduce appetite for car finance lending, even as the market remains large, with £41 billion of lending recorded last year.

The FCA said its scheme provides a more efficient alternative to handling complaints through courts or the ombudsman, which it estimates would cost lenders billions more.

Outlook for consumers and the industry

For consumers, the scheme represents one of the largest financial redress programmes in the UK, with millions of potential car finance claims and PCP claims under review.

However, legal disputes and industry pushback could affect the timing and structure of payouts 2026, as lenders weigh challenges to the FCA’s authority.

The outcome is expected to set a precedent for how large-scale financial compensation schemes are handled in the future and could redefine the balance between consumer protection and regulatory power in the UK financial system.

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References:

1. South African banking group FirstRand plans to exit the UK motor finance market after raising provisions for car finance compensation to £750 million - https://www.autofinancenews.net/allposts/risk-management/firstrand-to-exit-uk-as-car-loan-charges-hit-750m/?ki-cf-botcl=1
2. Financial Conduct Authority (FCA) car finance redress plan - https://www.fca.org.uk/publications/policy-statements/ps26-3-motor-finance-consumer-redress-scheme
3. The group will pursue an “orderly ownership transition” of its UK business, Aldermore Bank, marking the first major withdrawal from the sector as costs escalate - https://www.ft.com/content/b8b5d312-ab9a-4ee0-b9ad-37c25b4cd959?syn-25a6b1a6=1
4. FirstRand increased its provisions by £510 million after the FCA confirmed details of its compensation scheme - https://www.bloomberg.com/news/articles/2026-04-07/firstrand-raises-provisions-for-uk-car-loan-misselling-saga
5. Around 12.1 million agreements are now eligible for review - https://www.fca.org.uk/publication/policy/ps26-3.pdf
6. The FCA has estimated average compensation at about £829 per agreement - https://www.bbc.com/news/live/czx94evl5lrt
7. FirstRand said the scale of the provisions has made continued participation in UK motor finance unsustainable - https://www.businessday.co.za/companies/2026-04-07-uk-motor-finance-claims-force-firstrand-to-weigh-exit/
8. UK Supreme Court ruling that limited compensation to the most serious cases of misconduct - https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf