Blue Motor Finance, an independent motor finance provider, is reportedly on the verge of administration following financial setbacks linked to the Financial Conduct Authority's (FCA) planned £9bn motor finance redress scheme. The company faces a redress bill exceeding £50m, having lent over £1bn to more than 120,000 customers, according to Sky News.
EY Prepares for Insolvency
Big Four accounting firm EY is lining up administrators to oversee the insolvency process if a rescue deal cannot be secured for Blue Motor Finance. The firm is scrambling to find a buyer or additional funding to prevent collapse. Earlier this year, Shawbrook, a London-listed bank, cancelled a 'forward flow' funding agreement with Blue Motor Finance, exacerbating the company's financial strain.
FCA's Redress Scheme
The news comes weeks after the FCA announced a £9.1bn consumer redress scheme following a lengthy consultation and a high-profile legal battle over secret commission agreements between car dealers and lenders. Initial proposals in October estimated an £11bn bill for lenders, but the final figure was reduced to £9bn in March. Like all motor lenders, Blue Motor Finance has posted an alert on its website about the redress scheme, though it is unclear how much of its lending falls within the scope of the compensation programme.
Legal Challenges Mount
The update follows last week's revelation that Mercedes-Benz is among four legal challenges lodged against the FCA. The carmaker has set aside £400m for payouts related to the scandal, which involves undisclosed commission agreements that left consumers unaware of additional costs. The FCA confirmed it had received challenges from three lenders and Consumer Voice, represented by Courmacs Legal.
Some major banks are not challenging the scheme. Lloyds Banking Group, which has set aside £2bn for payouts, stated it was 'disappointed' but would not challenge the FCA's plan. Santander, which raised its provisions to £640m and took a first-quarter profit hit, also confirmed it would not challenge the scheme.
