British banks witnessed a significant share price surge after the Supreme Court granted permission to hear an appeal concerning car loan misselling claims, potentially worth billions of pounds in compensation. Close Brothers experienced an 8% increase in share value, while Lloyds Banking Group, owner of the UK’s largest car finance provider Black Horse, saw its shares climb over 4%.
The landmark case, scheduled for hearing between January and April next year, challenges an October Court of Appeal ruling that deemed undisclosed commission payments to car dealers illegal without customer consent. This earlier judgement sent tremors through the British banking sector, expanding the scope of potential compensation beyond discretionary commissions to include fixed fees.
The Financial Conduct Authority has welcomed the Supreme Court’s swift decision, considering the substantial impact of any forthcoming judgement. The regulatory body is contemplating formal intervention to provide expertise during the substantive appeal.
The car finance market, valued at £52 billion last year, has prompted lenders to take decisive action. Close Brothers suspended all car lending operations, while Lloyds temporarily halted commission payments for new motor finance loans. The Financial Ombudsman Service projects receiving over 47,000 car finance complaints by April, nearly quadrupling last year’s figures.
Major financial institutions have already begun preparing for potential fallout. Lloyds had previously allocated £450 million for future redress costs, while Close Brothers implemented a £400 million capital plan. Industry analysts draw parallels to the payment protection insurance scandal, which cost banks £50 billion, with Moody’s estimating potential car finance redress costs could reach £30 billion.
The Supreme Court’s decision will provide crucial clarity for both lenders and consumers, potentially establishing precedent for other areas of UK consumer finance where intermediaries receive undisclosed commissions. The ruling’s implications extend beyond the automotive sector, potentially reshaping the landscape of British financial services.
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