Bank of Ireland pauses new UK car finance offers after shock industry ruling

Bank of Ireland’s UK car finance arm, Northridge Finance, has temporarily put the brakes on offering new finance, as the industry reels from a landmark court ruling last week.
“Northridge has temporarily paused new finance proposals for a short period,” a spokesman for Bank of Ireland said of a business that has a €3 billion car finance book, equating to a 2 per cent share of the UK market.
The court of appeals in London ruled last Friday that motor finance brokers must fully inform customers about the existence and size of commissions when taking out car loans, amid a wider review by the UK Financial Conduct Authority (FCA) into historical practices in the industry.
Bank of Ireland has joined a number of motor finance providers in temporarily halting new loan offerings this week as they scrambled to make changes to products, customer disclosures and consents related to commission payments. Some have resumed lending in recent days.
The Bank of Ireland spokesman declined to comment on when Northridge lending would resume, although it is understood that lending could restart on a phased basis next week.
The regulatory investigation and court cases centre on so-called discretionary commission arrangements (DCAs) on car loans, before the practice was banned by the FCA in 2021
The practice meant car dealerships and brokers had the power to set interest rates on car loans – above a minimum rate set by the actual lender – and earn higher commissions as a result. The FCA period under review spans 2007 to 2021.
Lloyds Banking Group, one of three lenders subject to the test legal cases, said on Monday the court’s surprise ruling “sets a higher bar for the disclosure of and consent to the existence, nature and quantum of any commission paid than had been understood to be required or applied across the motor finance industry prior to the decision”.
The other two lenders subject to the legal cases were merchant bank Close Brothers and a unit of South Africa’s FirstRand Bank.
The court ruled that the brokers (motor dealers) had breached a common-law fiduciary duty to act in the best interests of customers and put themselves in a position of conflict. The three lenders have been ordered to repay the commissions to the borrowers.
Bank of Ireland said in a trading statement on Wednesday that it noted the UK court ruling and that it continued to “closely monitor developments”.
The ruling may result in a much higher compensation bill – running well into tens of billions of pounds – for the industry that had been expected, according to analysts.
RBC Capital Markets analysts said the consensus view in the market – prior to the UK court ruling on the three test cases – had been that Bank of Ireland potentially faced less than €200 million of compensation and other costs relating to the industry-wide issue.
However, RBC has since hiked its own much-higher-than-consensus estimates for the sector and now believes the cost for Bank of Ireland – including fines, redress and administration expenses – could be €950 million.