Car finance firms face ‘headache’ over wave of complaints

Many have described the scandal as the “next PPI”, which saw banks paying out billions of pounds in compensation to customers who were mis-sold personal protection insurance.

Consumer expert Martin Lewis revealed earlier this month that over one million car finance complaints had been submitted since he launched the car finance reclaim tool on the MoneySavingExpert.com website – around 30,000 per day.

He said: “In value terms, car finance mis-selling is potentially going to be the second biggest reclaim payout in UK history – possibly over £10bn repaid – which could even provide a fillip to the economy as PPI did.”

But Nikhil Rathi, the chief executive of the FCA, recently played down comparisons with PPI.

He said: “I do not anticipate this issue playing out as PPI did, not least because we have intervened early in the interests of market orderliness.”

The regulator has launched an investigation into whether people could be owed compensation for car loans, with plans to set out “next steps” by the end of September.

It is still too early to know the extent of the scandal and the outcome of the review, but banks are already preparing for the potential costs.

Lloyds Banking Group, which owns Black Horse, the UK’s largest car finance provider, has set aside £450m to cover the potential costs of the review.

Meanwhile Close Brothers, which has a motor finance arm, has outlined plans to shore up its balance sheet by £400m as it prepares for the impact of the industry probe.

Lloyds has previously said the amount could be higher or lower than that currently set aside.

Close Brothers has said it would be “premature” to predict the review’s conclusion but it recognizes the “paramount importance” of preparing for a range of possible outcomes.