FirstRand Limited, Africa’s largest banking group by market value, has voiced concern over the United Kingdom’s newly proposed £11 billion ($14.7 billion) car loan compensation scheme, warning that it could expose lenders — including its UK subsidiary, MotoNovo Finance — to significant financial risks.
In a recent statement, the bank said the plan, unveiled by the UK’s Financial Conduct Authority (FCA), “appears to have moved beyond what can be considered proportionate or reasonable,” underscoring growing tension between regulators and lenders over how to compensate consumers mis-sold car finance deals over nearly two decades.
What’s at stake
The FCA’s proposal stems from its sweeping review of the UK motor finance market, which examined 32.5 million finance agreements signed between April 2007 and October 2024. The regulator found that about 44% — or 14.2 million — of those loans were unfair, largely due to commission structures that incentivized car dealers to charge higher interest rates to boost their own earnings.
The potential compensation bill could reach £11 billion, a cost expected to fall heavily on banks and other lenders operating in the UK’s car finance sector.
FirstRand, through its MotoNovo Finance unit acquired in 2006, commands roughly 10% of the British car loan market, making it one of the major players facing scrutiny.
Financial exposure
The Johannesburg-based lender has already set aside R5.8 billion ($338 million) to cover possible redress costs and related expenses but warned that the FCA’s broader approach could increase losses beyond its current provisions.
“Whilst more time is required to fully review the statement, the group’s initial view is that the scheme appears to have moved beyond what can be considered proportionate or reasonable,” the bank said.
Mary Vilakazi, FirstRand Chief Executive, has been candid about the risks. Speaking to Bloomberg Television last month, she cautioned that if the lender were required to make “material payments” under the redress program, it could limit resources available for new lending and prompt a reassessment of its UK operations.
Regulatory backdrop
The FCA’s proposal follows an August 2025 UK Supreme Court ruling involving three drivers — Johnson, Wrench, and Hopcraft — who alleged that car dealers received hidden commissions from lenders, including FirstRand and Close Brothers, without proper disclosure.
While the court ruled that car dealers acting as credit brokers do not generally owe fiduciary duties to customers — thereby limiting lenders’ liability — it upheld one claimant’s case (Johnson), deeming his loan “unfair” under the Consumer Credit Act due to a large undisclosed commission and a non-transparent exclusivity agreement between the dealer and the lender.
Despite the ruling’s limited scope, the FCA now seeks to broaden redress to a wider range of unfair practices, a move lenders — including FirstRand, Lloyds, and Close Brothers — argue contradicts the court’s interpretation and could trigger disproportionate payouts.
Market implications
The proposal adds another layer of regulatory risk for African banks with exposure to mature markets, where consumer protection is increasingly stringent.
Analysts at Keefe, Bruyette & Woods said they see “little likelihood of incremental provisions” among major UK banks, implying that smaller or foreign-owned lenders could shoulder a greater share of the costs.
According to Bloomberg, FirstRand’s UK unit accounts for about 10% of group earnings and 20% of its balance sheet — a meaningful exposure that could weigh on investor sentiment if the FCA’s proposal advances in its current form.
While the redress program remains under consultation, it highlights a broader question for cross-border lenders: how to balance market expansion with the rising costs of compliance and consumer protection.
