- FirstRand has raised provisions to £750 million over UK motor finance redress.
- The bank is now considering exiting its UK business, including Aldermore.
- Industry-wide compensation could reach £7.5 billion, affecting millions of loans.
South Africa’s FirstRand is preparing to step back from the UK motor finance market after setting aside £750 million to cover potential compensation linked to mis-sold car loans. The move follows the final redress plan outlined by the Financial Conduct Authority, which has tightened the financial impact on lenders.
The bank, which owns Aldermore and its motor finance arm MotoNovo Finance, said the latest provisions go well beyond what it had initially expected. It added a further £510 million after the regulator’s March update, taking the total to £750 million — a figure that now outweighs the roughly £275 million in profits it generated from UK motor finance over more than a decade.
FirstRand said, as quoted in a news report, that the revised redress model is “disproportionate and unfair”, pointing to changes such as a hybrid compensation calculation and higher interest assumptions that do not fully account for lenders’ costs.
A costly reckoning for lenders
The issue stems from discretionary commission arrangements, where car dealers were allowed to earn higher commissions by increasing interest rates on loans — often without clear disclosure to customers.
The fallout has been building for some time. Following scrutiny by the UK Supreme Court in August 2025, compensation was expected to be limited to the most serious cases. However, the FCA’s final framework appears to have widened the scope.
According to estimates, the industry could face a total compensation bill of around £7.5 billion, down slightly from earlier projections but still significant. The regulator reviewed 32.5 million agreements signed between April 2007 and October 2024, with roughly 44 per cent considered potentially unfair.
Average payouts are expected to be around £829 per agreement, adding up quickly across millions of affected customers.
Other major lenders, including Lloyds Banking Group and Close Brothers Group, have also set aside substantial provisions, suggesting the issue is industry-wide rather than isolated.
For FirstRand, the numbers appear to have tipped the balance. The bank said the business case for continuing a UK consumer finance operation no longer fits within its risk appetite, especially given ongoing regulatory uncertainty and what it described as “look-back” risks.
MotoNovo, which holds about 10 per cent of the UK car finance market, may now require additional capital support — something the group hinted could be difficult given competing priorities.
As a result, FirstRand said it will work with regulators and the Aldermore board to facilitate an “orderly ownership transition”. While no timeline has been confirmed, the language suggests a gradual exit rather than an abrupt withdrawal.
The UK business currently accounts for about 10 per cent of FirstRand’s earnings and roughly 20 per cent of its balance sheet, making this a significant strategic shift.
Markets take a measured view
Despite the scale of the provisions, investor reaction has been relatively steady. Shares rose modestly after the announcement, indicating that markets may have already priced in much of the risk — or see the potential exit as a decisive step.
The bank said it still expects to pay dividends based on earnings before tax, even under the current provisioning scenario. However, it has warned that full-year earnings could fall by as much as 9 per cent, with return on equity drifting towards the lower end of its 18–22 per cent target range.
For now, much depends on how the redress scheme is implemented — and whether further legal challenges or regulatory changes follow.
What seems clearer is that the UK motor finance sector is entering a more cautious phase, with lenders reassessing both risk and returns in a market that once appeared reliably profitable.
