A bank has said it will quit the UK in protest after an "unfair" scheme that will see its car finance compensation payouts soar to £750m.

FirstRand, which owns roughly a tenth of the UK car finance sector through MotoNovo, has vowed to abandon its UK operations as result of the City watchdog's mass redress scheme for mis-sold car loans .

In a notice to shareholders, the South African bank said it would leave its motor finance operations in Britain because it no longer has the "risk appetite" for the UK.

The Financial Conduct Authority (FCA) finalised details of the scheme at the end of March, which FirstRand said were "disproportionate and unfair" .

The terms of the scheme mean FirstRand now expects its compensation bill to hit £750m, up from its previous estimate of £510m.

The firm's announcement shows how the fallout from the car finance scandal is rocking the sector as millions of borrowers prepare to claw back compensation.

Around 12 million drivers will be entitled for an average payout of £829 under the FCA's scheme , which will cost the car finance industry as much as £9.1bn.

This compensation is for customers who were sold car finance agreements in which dealers received a fee from lenders based on the interest rate charged on the loans.

The FCA, which banned these agreements in 2021, said these fees were rarely disclosed to customers and provided an incentive for dealers to charge higher interest rates than necessary.

Lenders including FirstRand had lobbied heavily for the compensation scheme to be watered down. The FCA did make some changes to the scheme following feedback from industry, but the South African group said that this was outweighed by other "problematic" amendments.

FirstRand's higher payout estimate came as a result of the watchdog's decision to broaden the scope of what it considered to be an "unfair" loan and changes to the amount of interest on unfair loans that a company would have to pay back to customers.

Back in October, the FCA had said it expected average payouts to total a lower sum of £700.

The South African bank said that it reserved its legal rights to challenge the scheme and that it believed that the FCA's terms were "deeply flawed" and diverged "significantly and inappropriately" from a previous Supreme Court ruling.

The total cost for FirstRand would far exceed the £275m in profits that it has made on its motor finance activities in the UK over the past decade.

An FCA spokesman said: "Our scheme provides certainty and is the most cost efficient and orderly way to deal with liabilities that exist, no matter what. We welcome lenders, First Rand included, making financial provisions so they can deliver it.