RE: Judgment Day1 Apr 2025 12:12
The UK’s financial watchdog sought to rein in the spiraling motor finance saga, saying at the start of a closely-watched Supreme Court hearing that a previous ruling on compensation “goes too far.”
At the outset of a three-day hearing, the Financial Conduct Authority said a “sweeping” appeal court decision last year on the duties of motor dealers went further than expected. The FCA is waiting for a final ruling from the country’s top judges before imposing a compensation program for borrowers that some analysts estimate could cost banks as much as £38 billion ($49.1 billion).
The panel of five judges, hearing the appeal brought by lenders Close Brothers Group Plc and South Africa-based FirstRand Ltd., are examining a ruling that effectively tore up consumer finance practices by declaring it unlawful for banks to pay commission to a car dealer without obtaining the customer’s informed consent. The UK motor finance market is worth some £40 billion a year, financing about two million car purchases. The judgment — that motor dealers owed various duties of loyalty to their customers — stunned the consumer finance industry and prompted steep declines in several bank stocks. The judges declared that the customers placed “trust and confidence” in the brokers to secure a competitive agreement and that gave rise to a duty in turn. Almost any user of car finance could apply for compensation in this circumstance, if the ruling is upheld.
Investors are also taking note. Close Brothers shares, which have lost two thirds of their value since the first customers lodged appeals in July 2023, jumped as much as 6.5% in early trading in London before reversing the gains. A number of lenders including Lloyds Banking Group Plc have set aside increasing sums for a redress program.The FCA, which has been reviewing car finance for more than a year, said it’ll decide whether to implement the compensation program within six weeks of the Supreme Court’s decision. The watchdog was granted permission to take part in the case and will present its arguments on Thursday, but Chancellor Rachel Reeves’ own attempt to intervene was rejected by the court.
Even if the lenders succeed in overturning the ruling, they’re still likely to face claims from customers who were charged discretionary commissions. The FCA banned the practice in 2021, saying it incentivized car dealers to increase a customer’s borrowing costs.
The court typically takes at least three months to issue a ruling, but has handed down judgments quicker in urgent cases, such as when the judges thwarted then-Prime Minister Boris Johnson’s attempt to suspend Parliament ahead of a Brexit deadline.
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https://www.bloomberg.com/news/articles/2025-04-01/uk-watchdog-says-prior-motor-finance-ruling-goes-too-far?leadSource=uverify%20wall
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