Bank of Ireland sets aside €172m for car finance compensation

Bank of Ireland has set aside €172 million (£142 million) to cover potential compensation costs arising from the mis-selling of car finance in the UK. This move reflects the potential for large-scale redress across the car finance industry, with millions of car owners expected to receive payouts for "hidden" charges and unfair practices.

This follows Lloyds Banking Group's decision last week to nearly triple its compensation provision to £1.2 billion. This stems from an investigation by the UK's Financial Conduct Authority (FCA) into car finance agreements, which has uncovered problematic practices within the industry that warrant further examination.

In the UK, the vast majority of new cars, as well as many used cars, are purchased through finance agreements. Approximately 2 million cars are sold this way each year, with customers paying an initial deposit followed by monthly payments that include interest. However, many of these agreements have come under intense scrutiny regarding their transparency and fairness.

In 2021, the FCA banned deals where car dealers received commission from lenders based on the interest rate charged to customers. The FCA stated that this practice incentivized dealers to charge buyers interest rates higher than necessary, potentially leading to financial detriment. Since January of this year, the FCA has been considering whether compensation should be paid to individuals who entered into such deals before 2021, aiming for a just resolution.

Bank of Ireland provides car finance through its Northridge Finance business. The bank stated that it anticipates "further clarity on this matter in 2025." In the meantime, the bank announced pre-tax profits of just under €1.9 billion, slightly lower than the €1.94 billion reported in 2023, indicating a relatively stable financial performance.

Bank of Ireland is one of the two largest banks in the Republic of Ireland and also operates in the UK, including its branch network in Northern Ireland. In 2024, the UK division's underlying profit increased by 27% from £239 million to £303 million. The division has undergone restructuring in recent years, with the bank focusing on more profitable lending opportunities, particularly in mortgages, while exiting other businesses, streamlining its operations.

Bank of Ireland Group Chief Executive Myles O’Grady said that the 2024 overall performance was strong, with the group having "momentum across our business franchises". The bank remains optimistic about its future prospects and its ability to deliver sustainable growth in the years ahead.