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FirstRand, a leading financial services group led by South African banker Mary Vilakazi, has disclosed that a new U.K. proposal to compensate consumers missold car loans could cost lenders as much as £11 billion ($14.7 billion), exceeding initial estimates.
In a statement, the group said the FCA’s latest position appears to exceed what it had expected to be a fair or proportionate outcome. FirstRand added that the proposed approach does not align with a recent ruling from the UK Supreme Court, which held that unfair treatment should be assessed on a combination of facts rather than presumptions.
Dispute over scope of compensation
The UK’s Financial Conduct Authority has released a paper outlining a redress program for the motor finance industry, focusing on commission arrangements between dealers and lenders.
FirstRand plans to meet with the regulator to discuss what it says are inconsistencies in the draft’s data and methodology. “Once we gain clarity on these issues, which could be sooner than the six-week period outlined by the FCA, we will update shareholders immediately,” it said.
The warning follows earlier guidance from FirstRand that the UK court decision could lift costs in its loan portfolio. Last year, a ruling required MotoNovo, a FirstRand subsidiary, to disclose details of dealer commissions. The bank has argued in appeals that car dealers should not be treated as fiduciaries or expected to provide impartial advice.
Bank growth under Vilakazi
FirstRand, Africa’s largest financial services group by market capitalization, boasts a diversified portfolio that includes FNB, RMB, WesBank, and Aldermore. The group operates actively in South Africa, the UK, and various African regional markets.
Under Mary Vilakazi, who became the group’s CEO earlier this year, FirstRand reported a 10 percent jump in annual profit for the year ending June 30, rising to R45.1 billion ($2.6 billion) from R41 billion ($2.36 billion) a year earlier. Growth was driven by double-digit earnings at First National Bank, Rand Merchant Bank and WesBank, alongside stronger treasury income.
