LONDON, April 7 – South Africa’s FirstRand plans to exit its UK motor finance business after increasing provisions to £750 million to cover compensation claims related to mis-sold car loans.
The South African lender raised the provision by £510 million following the final redress framework issued by the Financial Conduct Authority, which outlined industry-wide compensation obligations.
The UK motor-finance sector is expected to pay about £7.5 billion in compensation to consumers, with millions of loan agreements deemed potentially unfair. The review covered more than 32 million agreements issued between 2007 and 2024, with roughly 44% flagged as problematic.
FirstRand said the revised regulatory stance has made the UK consumer-finance business no longer viable within its risk tolerance. The bank now plans an orderly transition of ownership of its UK operations, including the Aldermore Group, which it acquired in 2017.
The case centers on commission structures that allowed car dealers to earn additional income while increasing borrowing costs for customers. A ruling by the Supreme Court of the United Kingdom in 2025 limited compensation to the most severe cases, though regulators have taken a broader approach in determining redress.
FirstRand has maintained that the regulator’s plan diverges from the court’s ruling and said it reserves the right to pursue legal options.
The provision significantly outweighs the roughly £275 million in profit the bank generated from UK motor finance operations over more than a decade. The move is expected to weigh on earnings, with the lender forecasting a decline of up to 9% in full-year normalized profit and a return on equity at the lower end of its target range.
Despite the hit, shares in FirstRand rose modestly in Johannesburg trading, suggesting investor confidence in the bank’s decision to exit a business facing heightened regulatory and financial risks.
