Stellantis UK Braces for £37M ($48M) Car Finance Scandal Fallout

Stellantis is preparing for a major financial hit in the United Kingdom as regulators crack down on a widespread car finance scandal. According to The Sunday Times, Stellantis Financial Services UK has earmarked £37 million (about $48 million USD) to cover potential claims tied to improperly disclosed commissions in auto loan deals.

The Scandal at a Glance –

At the heart of the issue are “discretionary commission” agreements, a practice that allowed car dealers to set interest rates for customers’ loans. The higher the rate, the larger the dealer’s commission. This created a clear conflict of interest, as many customers ended up paying more than necessary without ever knowing how the rates were determined.

The Financial Conduct Authority (FCA), the UK’s top financial regulator, banned this practice back in January 2021. However, it has since launched a sweeping review stretching as far back as 2007. The watchdog believes millions of finance deals may have been unlawful because consumers weren’t properly told about dealer incentives.

Industrywide Fallout –

The FCA estimates the total industry bill could run between £9 billion and £18 billion ($11–$23 billion USD), making it the biggest consumer compensation program in Britain since the infamous £50 billion ($63 billion USD) Payment Protection Insurance (PPI) scandal. In that case, millions of UK customers received payouts averaging a few hundred pounds each.

Stellantis isn’t alone. Lloyds Banking Group has already put aside £1.15 billion ($1.45 billion USD), Santander UK has reserved £295 million ($372 million USD), and BMW’s UK finance arm has set aside £70 million ($88 million USD). With Stellantis’ £37 million ($48 million USD) provision, it’s clear that carmakers and lenders alike are bracing for heavy costs.

Legal Shifts Add Pressure –

The story took another turn earlier this summer when the UK’s Supreme Court weighed in. While the ruling mostly favored lenders by limiting the overall size of the bill, it did uphold a case involving non-discretionary commissions, where commissions were hidden even if dealers didn’t set the interest rate. This means compensation will likely extend beyond discretionary arrangements, potentially widening the scope of payouts.

What It Means for Consumers –

Roughly 14.6 million car finance agreements are under review. For everyday drivers, the scandal could result in a few hundred pounds back in their pockets if they were misled into paying higher rates. The FCA has promised its scheme will be free to use, warning consumers not to hand over part of their compensation to claims management companies or lawyers.

Stellantis’ Position –

Stellantis Financial Services UK, a joint venture with BNP Paribas, signed off its accounts back in April—before the FCA confirmed an industrywide compensation plan. The company has not yet commented on the matter, but its provision signals it expects to be caught up in the regulator’s sweeping redress program.

The bottom line? While Stellantis’ £37 million ($48 million USD) provision is only a fraction of the potential industrywide fallout, the case underscores how long-running dealer practices could haunt automakers and banks for years to come. Consumers, meanwhile, should prepare for the possibility of payouts beginning as early as next year.

Source: The Sunday Times