Motor finance mis-selling scandal shows that our rotten banks are incapable of change

Despite all the inquiries and new rules the industry still appears to be treating customers with contempt

Reinventions are never easy. Just ask the poor souls that have tried to inject some fresh life into Provident Financial by ditching its 140-year-old name, embracing credit card lending and rebranding it Vanquis in a desperate attempt to shake off the toxic legacy of doorstep lending.

The company still provides loans for people deemed too risky by normal banks, only apparently now it’s a “specialist lender”. That’s one way of describing an outfit widely criticised by charities during its previous life for pushing high interest loans on people that often cannot afford to repay them.

The nauseating “Man from the Provy” tagline may have gone, but its problems clearly have not: Vanquis has become the latest name to be caught up in the car loans mis-selling scandal sweeping through the finance sector.

Soon, it might be easier to name the lenders that aren’t exposed. An industry that has been forced to pay out tens of billions in misconduct and compensation penalties once again finds itself thrust under the microscope of regulators. A cynic might ask whether the banking system is incapable of change.

Unfortunate echoes of the Payment Protection Insurance (PPI) scandal, which cost the banking industry tens of billions in customer redress, are ringing loudly in the ears of Lloyds boss Charlie Nunn and his peers as the claims pour in at an astonishing rate.

Somehow, Vanquis seems to have been completely blindsided by the problem. Only last month, the company reassured the stock market that trading had been “in line with management expectations”. It was “looking forward” to outlining plans for “delivering attractive and sustainable profit growth and returns”.

Fast forward a mere six weeks and a profit warning blamed on a surge in “third party claims” in the wake of the City watchdog’s review of “historical motor finance commission arrangements” has sent its shares crashing 45pc.

The company clearly believes it is unlucky to have found itself caught up in this. Though it provides vehicle finance through its Moneybarn arm, the company says “the vast majority of these complaints are not upheld”. Yet it still has to review each one, and the costs of that laborious process mean profits this year “will be substantially lower than market consensus”.

Reports suggest that most of the complaints have come from a single claims management company, too, raising fresh questions about the role of shameless ambulance-chasers in situations like these. Though the complexities of finance mis-selling make it tempting for consumers to turn to claim managers, those that do risk forfeiting a big chunk – as much as a quarter plus VAT in some cases – of the compensation they receive.

Meanwhile, each complaint to the Financial Ombudsman generates a £750 case fee, payable by the firm regardless of outcome, in addition to any redress payments that need to be made if the complaint is upheld.

But that’s probably for another day. The more pressing question is how the banking industry once again finds itself on the brink of another hugely costly investigation that seems certain to destroy whatever may be left of its reputation. Banking was supposed to have cleaned up its act, but it is impossible to avoid the conclusion that they have been up to their old tricks all along – treating customers with the utmost contempt.

The Financial Conduct Authority’s inquiry, which is expected to last until September, centres around nowbanned “discretionary commission arrangements” that allowed brokers and car dealers to make up interest rates to increase their commission. The practice was outlawed in 2021 and regulators must determine how many customers overpaid after launching an investigation in January.

Even now, the industry’s default reaction is damage limitation – playing down the seriousness of what has happened instead of holding up its hands. But that’s precisely what happened with the PPI scandal. The banks initially played it down, and it mushroomed into a £50bn-plus catastrophe. The impact of regulatory crackdowns often tend to be greater than initially thought.

Consumer champion Martin Lewis thinks the scale of car finance misselling could be even bigger after his website experienced a deluge of cases through a claim tool it launched at the beginning of last month to help customers. Since then, more than a million people have complained – equivalent to 30,000 people a day. Describing the numbers as “staggering”, Lewis says the number of complaints is building up more quickly than during PPI.

Once again, Lloyds finds itself right at the centre through its Black Horse finance arm. Lewis says the banks with the most complaints against their name via his moneysavingexpert site are Black Horse with 16pc, the most so far, and Santander with 8.2pc of the total.

The car industry won’t come out of this well, either. Volkswagen’s finance arm accounts for the second most claims with a 14pc share, while Stellantis, the parent company of Fiat, Peugeot and Citroen, has 8pc, and BMW 7.4pc. Ford, Mercedes, and Toyota make up 4.3pc, 3.6pc, and 2.5pc respectively – not a great look, either given how many of the major carmakers were eventually implicated in the emissions scandal.

But it’s the banks that stand out by virtue of the sheer number of serious misdeeds they have clocked up since the financial crisis. The FCA’S inquiries stretch as far back as 2007 – that’s potentially 17 years of yet more wrongdoing.

After all the fine words, the billions in payouts, the inquiries, the select committee hearings and the new rules, this latest impropriety shows that our rotten banks have completely failed to get their house in order.