Bank of Ireland warns it could face €400m repayments in UK car finance redress scheme

Bank of Ireland has warned that repayments to cover the cost of car finance mis-selling in the UK could more than double to €400m. Picture: Jason Alden/Bloomberg

Bank of Ireland has warned that repayments to cover the cost of car finance mis-selling in the UK could more than double to €400m. 

The bank had set aside £143m (€167m) for repayments but now estimates that the provision could increase from £143m to £350m (€400m). The bank had provided car finance in Britain via its Northridge Finance business.

Britain's watchdog Financial Conduct Authority published details of its proposed compensation scheme last week. The FCA said payouts by financial providers were due on around 14m unfair deals, averaging at about £700 (€804) each. "In respect of a proposed industry-wide redress scheme on UK motor finance commissions, the group has undertaken an assessment of the potential financial impact of the proposed scheme," said a Bank of Ireland statement.

"The estimated increase is due to the increased likelihood of a higher number of eligible cases, the construct of the proposed redress methodology and the customer engagement approach," it added.  

The final cost to Bank of Ireland could change depending on the outcome of the consultation, "actual customer opt-in rates and any further legal, regulatory or industry developments".

"The group does not believe that the FCA’s proposed redress methodology reflects the actual loss to customers or achieves a proportionate outcome. In addition, the FCA’s proposed approach for assessing unfairness does not align with the legal clarity provided by the recent UK Supreme Court judgement. The Group will engage with the FCA on this basis."

Bank of Ireland will issue its third quarter interim management statement on October 29.

Davy has forecast that the bank's full year profit after tax will be 8% lower based on the new repayments costs, which incorporates a 3% increase to pre-provision operating profit, offset by higher non-core items (predominantly UK motor finance). "While higher than initially anticipated, estimating the potential impact of the consultation provides significantly greater guardrails on capital impact – which has not been the case over the past 12/18 months," said Davy analyst Diarmaid Sheridan. "This should aid decisioning on capital distributions which were potentially impacted by the uncertainty over that timeframe."