Vanquis shares slump as FCA motor finance probe ups costs

Vanquis Banking Group shares dived on Monday after the business warned profits would be ‘substantially lower’ than market forecasts.

The Bradford-based firm expects an adjusted return on tangible equity – net earnings divided by shareholders’ equity – in the low single digits for the current financial year.

It follows ‘significant levels’ of third-party complaints connected with the Financial Conduct Authority’s review into historical motor finance commission arrangements.

Although not a subject of the FCA probe, the company noted that its administration costs had increased heavily from dealing with the high volume of complaints, an overwhelming majority of which are upheld.

Vanquis said it was considering taking legal action ‘to address this situation’.

For the 2025 fiscal year, meanwhile, Vanquis anticipates its RoTE remaining at a single-digit level due to the ‘near-term adverse impact’ of accounting requirements connected with receivables growth.

Vanquis’s share price nosedived by 39.6 per cent to 75p by midday, making them by far the biggest faller on the FTSE All-Share Index.

Launched in January, the FCA investigation into historical motor finance loans will examine so-called ‘discretionary commission arrangements’ (DCAs), which used to comprise around three-quarters of all vehicle financing deals. 

DCAs were controversial because they allowed car dealerships and brokers to levy whatever interest rate they wanted on a loan, thereby encouraging them to charge higher rates. They were eventually banned in 2021.

However, more customers have told regulators over the past year that lenders unfairly turned down their compensation for DCAs.

The Financial Ombudsman Services recently ruled in favour of two customers whose cases were rejected, while others have been upheld in courts.

As lenders were expected to receive a deluge of complaints in the wake of these rulings, the FCA started a probe into DCAs and told motor finance lenders to pause their responses to complaints received since 17 November.

Many analysts believe the probe could mirror the payment protection insurance scandal, which led to banks paying out around £40billion in compensation.

Vanquis said in January that its motor finance arm, Moneybarn, was unaffected by the FCA probe since it has never offered variable commissions.

Later this month, the company plans to launch a strategy to return RoTE levels to mid-teens from 2026 through a return to ‘sustainable income growth.’

On Monday, it warned that measures to overhaul its products and pricing would cause full-year income to be ‘materially lower’ than the £538.3million estimated by analysts.

Ian McLaughlin, chief executive of Vanquis, said: ‘We have short-term challenges to address but remain confident that the group’s new strategy will deliver good outcomes for our customers and attractive and sustainable returns for our shareholders over the medium and longer term.’