A MAJOR bank is looking to ditch its scandal hit car finance arm from its core UK operation.
The decision follows a landmark ruling in October 2024, which deemed it unlawful for car dealers, acting as brokers, to receive commissions from lenders without obtaining the customer’s consent.
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Santander has already set aside £295million to compensate affected borrowers.
This comes amid ongoing speculation that the bank may be considering a complete withdrawal from the UK market.
Despite the rumours, Ana Botín, chief executive of Santander Group, stated in February that the bank was not up for sale.
However, City analysts suggest that shedding its car finance division could enhance the appeal of its core banking operations to potential buyers.
As reported by Bloomberg, the plan would involve moving the finance division out of its Santander UK Plc subsidiary.
Benjamin Toms, of RBC Capital Markets, told The Telegraph: “Shifting of the consumer finance business out of the UK subsidiary could be an important step in this sale process.
“Given the ongoing litigation in the motor finance space, removing this product from the equation, will likely help with the marketability of the Santander UK asset.”
The bank’s ongoing plans come as the Supreme Court prepares to rule on whether lenders should be held responsible for compensating drivers.
Should the ruling go against lenders, the total compensation bill is projected to reach £38billion, impacting numerous banks and specialist finance providers.
In March, the Financial Conduct Authority (FCA) confirmed it had been granted permission to intervene in the case and had submitted its arguments to the Court.
Should the Court rule that motor finance customers have suffered losses as a result of widespread failings by firms, the FCA is expected to consult on the introduction of an industry-wide compensation scheme.
Under a redress scheme, firms would need to figure out if their mistakes caused customers to lose money.
If they did, the firms would have to pay the right amount of compensation.
The FCA would create rules for firms to follow and make sure they stick to them.
This scheme would make things easier for customers compared to making a formal complaint.
It would likely mean fewer people using claims management companies, so they’d get to keep all of the compensation they’re owed.
What is the FCA investigating and who is eligible for compensation?
By James Flanders, Chief Consumer Reporter
What is being investigated?
The Financial Conduct Authority (FCA) launched an investigation last year into whether motorists were unknowingly overcharged when they took out car loans.
The investigation by the City watchdog focuses on past practices where banks allowed car dealerships and brokers to set their own interest rates on loans.
Under a now-banned discretionary commission arrangement (DCA), dealerships and brokers had a financial incentive to charge higher interest rates, as their commission increased proportionally.
However, many customers were unaware of this practice.
A landmark ruling in October 2024, deemed it unlawful for car dealers, acting as brokers, to receive commissions from lenders without obtaining the customer’s consent.
This applied to both discretionary commission arrangements (DCAs), where dealers set interest rates, and non-discretionary commissions.
The Supreme Court is now preparing to rule on whether lenders should be held responsible for compensating drivers.
Who is eligible for compensation?
There are two criteria you must meet to have a chance at receiving compensation.
First, you must be complaining about a finance deal on a motor vehicle (including cars, vans, motorbikes, and motorhomes) that was agreed upon before January 28, 2021.
Second, you must have bought the vehicle through a mechanism like Personal Contract Purchase (PCP) or Hire Purchase (HP), which make up the majority of finance deals and mean you own the vehicle at the end of the agreement.
Drivers who leased a car through a Personal Contract Hire, where you give the car back at the end of the lease, are not eligible.
According to the financial regulator, on a typical £10,000 motor finance agreement, discretionary commission arrangements could have caused customers to pay an additional £1,100 in interest over a four-year term.
The FCA extended the deadline for lenders to respond to complaints, meaning borrowers whose lenders received other forms of commission may now also be eligible for compensation.
The Financial Ombudsman Service (FOS) revealed that it is grappling with a surge in complaints related to commission practices last month.
Over 60,000 complaints are awaiting resolution – a staggering threefold increase since May 2024 – highlighting a potential scandal that could rival the infamous Payment Protection Insurance (PPI) debacle.
PROGRESS OF FCA INVESTIGATION
The FCA had initially planned to publish the results of its investigation in September, but this has now been postponed to May 2025.
Additionally, firms now have until December 4, 2025, to respond to customer complaints.
The FCA says it has had to push back the deadline due to it taking “longer than expected to get the data” it needed from implicated car finance firms.
Investigators have also been unable to complete their review because of a pending court case surrounding one of the complaints.
It’s worth nothing, the FCA’s decision to extend the deadline to December 4 next year is just when firms have to respond to any complaints.
Customers are still encouraged to file their complaints before this date, and in some cases, there are specific time limits for doing so.
You can find more information about any time limits the regulator sets by visiting fca.org.uk/consumers/car-finance-complaints.
HOW TO CLAIM
Consumer finance website MoneySavingExpert.com offers an email template to help you complain to your finance provider.
You can download this by visiting moneysavingexpert.com/reclaim/reclaim-car-finance.
Alternatively, you can complain directly without using the template.
It’s crucial for anyone who took out car finance to file a claim, even if a previous claim was denied.
In your complaint, ask whether you were overcharged due to your broker receiving a commission and request the company to rectify this if it occurred.
If you’re unsatisfied with the company’s response, you can escalate your complaint to the Financial Ombudsman Service (FOS) at no cost.
You have until July 29, 2026, or up to 15 months from the date of the company’s final response letter, whichever is longer.
Avoid using a claims management firm, as they will take a portion of any successful claim.
LENDERS SET ASIDE COMPO CASH
CUSTOMERS of several major high street banks who were mis-sold car finance could be in line to receive thousands of pounds in redress.
Last month, Lloyds Banking Group revealed it has set aside another £700million for potential compensation relating to motor finance commission arrangements this morning.
The bank said the provision – taken in the fourth quarter, and adding to the £450million provision taken last year – was in light of a court judgment on the issue.
Barclays has additionally allocated £90million in response to the car finance scandal, while Santander revealed last year that it had earmarked £295 million for potential payouts.
Meanwhile, Close Brothers announced it anticipates setting aside up to £165million in the first half of the year to address potential legal and compensation costs arising from the ongoing review into car loan commissions.
