Santander’s UK profits have recently plummeted, in part due to setting aside large sums for potential compensation for those affected by the mis-selling of motor finance.
DCA Car Finance Claims
Discretionary commission arrangements (DCAs) are when lenders allow brokers and car dealers to raise the interest in order to increase their commission without the customer knowing.
They have been banned since January 2021 by the FCA, yet there has been a high volume of customer complaints to motor finance firms claiming compensation for commission arrangements that took place before the ban.
There is currently significant disagreement between some firms and affected customers on whether firms have breached their legal or regulatory requirements and acted unfairly.
FCA Investigation
The FCA have launched an investigation into the use of DCAs in car finance.
You can find out more about the FCA’s extension to motor finance complaints here.
The Financial Conduct Authority have extended the time that firms have to respond to consumer complaints about motor finance agreements not involving a DCA. They now have until 5th December 2025 to provide a final response to non-DCAs.
Firms previously had until 5th December 2025 to start responding to complaints about DCAs. However, following the October 2024 Court of Appeal judgement (which effectively stopped dealers from making commissions off car finance deals unless informed consent had been given by the buyer), car finance providers are likely “to receive a high volume of complaints”. Therefore, providers have now been given until that same date to start responding to any other type of car finance commission complaint.
What Firms are Involved?
There are a number of companies that are being forced to pay out due to mis-selling of car or motor finance. These include:
- Black Horse (part of Lloyds Banking Group)
- Barclays Finance
- MotoNovo
- VW Financial Services
LLoyds was the first British bank to put aside large sums to cover motor finance commission arrangements. In February last year, they set aside £450 million to cover potential costs relating to the mis-selling of car finance through their brand Black Horse.
Impact on Santander
Santander’s pre-tax profits have plummeted by 38% down to £1.3 billion, in part due to the £295 million it was made to put aside for potential compensation and legal costs for this car finance scandal.
In an interview with the Sunday Times, Santander’s CEO, Ana Botin, stated:
“The UK is not for sale. We love the UK and the UK will remain a core market.”
We have a strategy review every year. The UK is profitable, the UK provides diversification to us because it’s a different currency, it’s a low-risk balance sheet and I’m very happy with how the UK is making progress.”
However, some aren’t likely to be convinced by Botin. Hugo Cru, European banks analyst at KBW, commented:
“Santander has a balance sheet that’s as big as some of the larger US banks, but it trades at a much lower multiple and is less profitable”
“There are questions around whether [Santander] is actually adding value or not. There’s a conglomerate discount.”