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<\/div>\nA group of lenders won a major reprieve in a pivotal UK car finance case, after the country\u2019s top judges agreed that banks should only pay compensation in the most serious cases of motor finance misselling.<\/p>\n
The Supreme Court on Friday overturned most of a lower court ruling that last year had sent shares in affected banks spiralling. The decision also throws into uncertainty a compensation program that analysts previously estimated would cost the banks tens of billions of pounds.<\/p>\n
The Financial Conduct Authority said it would confirm before markets open on Monday whether it would go ahead with its plans. \u201cWe will be working through the weekend to analyze the judgment and determine our next steps,\u201d an FCA spokesperson said in a statement. \u201cIf we do decide to propose a redress scheme, we\u2019ll consult widely.\u201d<\/p>\n
The ruling was issued after the London stock markets had closed to prevent any market disruption, Judge Robert Reed said. Lloyds Banking Group Plc and Close Brothers Group Plc American depositary receipts were up more than 4% at 6:30 p.m. in London.<\/p>\n
The court said car dealers can act in their commercial interests, and dismissed most of the arguments that dealers selling loans for the banks must obtain consumers\u2019 informed consent to charge commission.<\/p>\n
The dealer \u201cwas not a fiduciary: that is to say, a person entirely committed to acting in another person\u2019s interest without any interest of his own,\u201d Judge Reed said. \u201cOn the contrary, the car dealer was at all times pursuing its own commercial interests in achieving a sale of the car on profitable terms.\u201d<\/p>\n
The judges upheld one of the Court of Appeal\u2019s rulings, saying a case brought by one of the claimants \u2014 Marcus Johnson \u2014 stood out because of several factors including the high level of commission the consumer was charged and the fact that the customer was expected to read a lengthy legal contract to understand the size of that fee. He also wasn\u2019t told that his lender, FirstRand Ltd., had the right to refuse the loan in the first place.<\/p>\n
\u201cI am delighted for him,\u201d said Kevin Durkin, a lawyer for Johnson. \u201cIt\u2019s a really good win for the consumer because they have got an angle and a route into court now.\u201d<\/p>\n
Next Steps<\/strong><\/p>\n Peter Rothwell, head of banking at KPMG, said affected banks will still need to continue preparations to compensate eligible customers. \u201cBut they can do so with greater confidence that it will focus on discretionary commission arrangements and cases where there is a breach of the Consumer Credit Act as a result of an unfair relationship, rather than all historic commissions.\u201d<\/p>\n Professional services firm BDO said the judgment could still result in redress of between \u00a35 billion and \u00a313 billion, or more, with clarity needed from the FCA about its next steps. Before Friday\u2019s ruling, analysts had estimated that the total bill for compensation could top \u00a330 billion.<\/p>\n Close Brothers and FirstRand appealed the case to the top court after previous judges said that consumers taking out car loans without giving informed consent about commission were treated unfairly.<\/p>\n Close Brothers said in a statement it was considering the judgment and would make further announcements as appropriate. FirstRand did not immediately respond to a request for comment.<\/p>\n The Finance and Leasing Association, an industry body, said the ruling \u201cproperly reflects the role and responsibilities of dealers, lenders and customers, and it has restored certainty and clarity to the largest point-of-sale consumer credit market in the UK.\u201d<\/p>\n \u201cThe FCA now has the legal clarity to continue its work to establish if a redress scheme is needed, and of course the thousands of unfounded complaints submitted to lenders by claimant law firms and CMCs can now be removed from the system,\u201d Stephen Haddrill, director general of the FLA, said in a statement.<\/p>\n What Bloomberg Intelligence Says:<\/em><\/strong><\/p>\n Lloyds and UK peers\u2019 \u00a31.7 billion in provisions for covering car-loan risks may be sufficient after the Supreme Court significantly narrowed lenders\u2019 legal exposure by reining in a lower court\u2019s findings. The ruling is a relief for the sector and allows lenders to effectively avoid a scandal that could cost as much as \u00a330 billion.<\/em><\/p>\n \u2014 Tomasz Noetzel, senior analyst, banks<\/em><\/p>\n<\/blockquote>\n Photograph: Used cars for sale at Big Motoring World\u2019s showroom near Chatham, UK, on Friday, Feb. 3, 2023. Used car prices took off in 2020 when consumers flush with lockdown cash sought used cars as an alternative to public transport. Photo credit: Chris Ratcliffe\/Bloomberg<\/em><\/p>\n Was this article valuable?<\/p>\n<\/p><\/div>\n\n