BANK of Ireland has put aside more than €400 million to compensate British and Irish customers caught up in a growing motor finance mis-selling scandal.
This decision follows a recent report released by Britain’s Financial Conduct Authority (FCA), which scrutinised commissions between lenders and car dealers.
The FCA alleges that these deals encouraged dealers to push customers into costlier car loans, a practice that was not always disclosed.
The bank initially estimated the amount based on probability-weighted scenarios, which calculate the likelihood of a particular scenario happening.
But after reviewing the FCA’s latest proposals, it now anticipates a lot more cases and much higher costs linked to legal proceedings.
A spokesperson for the Bank of Ireland stated that the revised estimate “is due to the increased likelihood of a higher number of eligible cases, the construct of the proposed redress methodology and the customer engagement approach”.
Despite the major increase, the bank emphasised that the FCA’s proposals remain under review and could change.
The final cost to the bank will depend on customer interest, legal outcomes and further regulatory developments.
While the bank has pledged to provide fair compensation where loss has occurred, it also expressed concerns that the FCA’s redress model may not accurately reflect actual customer losses.
The Bank of Ireland, which holds a 2% share of the British motor finance market, is one of several lenders now bracing for rising costs.
The total industry-wide compensation bill is estimated by the FCA to reach £11bn, covering around 14 million finance agreements signed between April 6, 2007 and November 1, 2024.
The average compensation per customer is projected at £700.
Other banks are also increasing their provisions.
Earlier this month, Lloyds Banking Group raised its compensation fund by £800m, bringing its total to £1.95bn.
Secure Trust Bank also increased its provision to £21m, stating the FCA’s approach was towards the extreme end of expectations.
Despite the financial hit, Bank of Ireland shares rose in trading on Monday, reflecting confidence in the bank’s proactive stance on the issue.