DUBLIN, IRELAND — Bank of Ireland (BoI) Group announced a significant increase in the provision set aside for compensating UK motor finance customers, raising the total estimated cost to £350 million (€403 million). This is a substantial jump from the previous provision of £143 million (€165 million) established last year.
The move comes in direct response to the Financial Conduct Authority’s (FCA) proposed industry-wide redress scheme. The scheme is designed to compensate millions of UK consumers who were impacted by the widespread practice of undisclosed or discretionary commission arrangements (DCAs) between lenders and car dealerships, which often led to customers paying higher interest rates. BoI provides motor finance in the UK through its subsidiary, Northridge Finance.
Key Financial Impact:
- New Provision: £350 million (€403 million)
- Previous Provision: £143 million (€165 million)
- Implied Increase: £207 million (€238 million)
The bank attributed the hike to the FCA’s consultation paper, citing three main factors: “the increased likelihood of a higher number of eligible cases, the construct of the proposed redress methodology and the customer engagement approach.”
Crucially, despite the multi-million euro financial hit, Bank of Ireland shares saw a rally on Monday. The market reaction suggests that investors view the bank’s decision to proactively ring-fence a larger, more definitive compensation sum as a positive step towards resolving a major source of regulatory uncertainty.
Regulatory Stance:
While BoI committed to achieving a fair outcome for customers, it also expressed reservations regarding the regulator’s approach. The bank stated that it “does not believe that the FCA’s proposed redress methodology reflects the actual loss to customers or achieves a proportionate outcome,” and plans to engage with the FCA during the consultation process.
The bank confirmed that the elevated provision is expected to reduce its strong pro-forma Common Equity Tier 1 (CET1) capital ratio by approximately 35 basis points, but it remains well above regulatory minimums.
