Santander Increases Motor Finance Provision as FCA Redress Scheme Nears
Santander UK has increased the amount it has set aside to cover potential compensation linked to historic motor finance commission arrangements. The bank previously announced a provision of £295 million in relation to possible redress costs, reflecting uncertainty around the Financial Conduct Authority’s ongoing review into discretionary commission models.
The increase places Santander among several major lenders preparing for significant financial exposure as the regulator considers a formal industry wide compensation scheme.
Why Santander Has Set Aside £295 Million
A financial provision is money a bank allocates in anticipation of future costs. It does not mean every agreement was mis-sold. It reflects risk planning based on regulatory and legal developments.
The FCA’s review focuses on discretionary commission arrangements used in Personal Contract Purchase and Hire Purchase agreements before 28 January 2021.
Under those models, car dealers could adjust the interest rate offered to customers within a permitted range. A higher interest rate meant higher commission for the dealer. The FCA banned this structure in 2021 after identifying a risk of unfair outcomes for consumers.
The regulator estimates that around 14 million motor finance agreements were written between April 2007 and January 2021 where commission arrangements may not have been fully transparent. That represents roughly 40 to 45 percent of all motor finance agreements written during that period.
Santander Consumer Finance funded a substantial share of dealership arranged agreements across the UK, meaning its historic loan book falls within the scope of review.
Industry Wide Exposure Now in the Billions of Pounds
Santander’s £295 million provision forms part of a wider pattern across the banking sector.
Recent disclosures show:
- Lloyds Banking Group has set aside approximately £1.95 billion for potential motor finance compensation
- Barclays has increased its provision to £325 million
- Close Brothers has allocated around £300 million
- Bank of Ireland UK has raised its provision to roughly £350 million
Combined, total sector provisions are expected to exceed £2 billion and could increase further depending on the final structure of any redress scheme.
Some market analysts have suggested total industry exposure could reach £8 billion or more in a high participation scenario. However, final figures will depend on how compensation is calculated and how many customers are deemed eligible.
What the FCA Is Proposing
The FCA has consulted on a possible redress scheme that could require lenders to review affected agreements proactively.
Under early estimates discussed during consultation, average redress could be around £700 per agreement, although actual payouts would depend on the level of financial detriment in each case.
The FCA has temporarily paused standard complaint response deadlines for many motor finance complaints while it finalises its approach. A final decision is expected in 2026.
If a formal scheme is introduced, lenders such as Santander may need to contact affected customers directly.
Legal Developments Adding Pressure
Court decisions have also shaped lender responses. In 2024, the Court of Appeal ruled in cases involving motor finance commission disclosure, raising questions about whether failing to disclose commission could create an unfair relationship under the Consumer Credit Act 1974.
While further legal clarification is ongoing, the rulings prompted several lenders to increase their provisions.
Santander has stated that it continues to review complaints in line with regulatory guidance and legal developments.
What This Means for Santander Customers
If you took out a Santander Consumer Finance agreement before January 2021, your agreement may fall within the FCA’s review period.
Key questions include:
- Whether a discretionary commission was applied
- Whether the commission structure was clearly explained
- Whether your interest rate was affected
- Whether the relationship could be considered unfair
Not every agreement will qualify for compensation. Each case depends on its individual facts.
You do not need to use a claims company to submit a complaint. You can contact Santander directly at no cost.
Wider Market Implications
Motor finance is one of the largest consumer credit markets in the UK. In recent years, more than 80 percent of new cars have been purchased using finance.
The scale of provisions now being reported suggests lenders are preparing for a structured regulatory outcome rather than isolated complaint decisions.
Unlike Payment Protection Insurance, discretionary commission was formally banned in 2021 before becoming a long running redress issue. That earlier intervention may limit the period of exposure.
However, with up to 14 million agreements potentially in scope, the issue remains one of the largest conduct reviews currently facing the UK banking sector.
Mis-Sold Expert Support
If you had a Santander car finance agreement before 28 January 2021 and are unsure how your interest rate was set, you can request a copy of your agreement and ask whether discretionary commission was applied. Complaints can be made directly to the lender free of charge or with claims management companies such as Mis-Sold Expert.
You can claim without using a claims management company; you can go to your finance provider and then to FOS, for free. Additionally, the FCA is introducing a free consumer redress scheme.
