Britain’s financial watchdog has broadened the scope of motor finance complaints to encompass vehicle leasing arrangements, whilst extending the deadline for lenders to respond to claims until December 2025. This significant development follows a pivotal Court of Appeal ruling from October, which deemed undisclosed commission payments from lenders to car dealers unlawful.
The Financial Conduct Authority’s (FCA) decision reflects the mounting pressure on the motor finance industry, where potential compensation claims could reach £30 billion. This figure approaches the scale of the payment protection insurance scandal, which cost the financial sector approximately £50 significant billion in redress payments.
The October ruling’s implications stretch beyond traditional car loans, potentially affecting 11.3 million additional customers. The FCA’s extension now covers both discretionary and non-discretionary commission arrangements, despite an impending Supreme Court appeal against the original judgment.
Major banking institutions including Lloyds, Barclays, and Santander UK appear well-positioned to absorb the financial impact. However, smaller specialist lenders such as Close Brothers, Aldermore, and Investec, alongside automotive manufacturers’ financing divisions like Ford and Volkswagen, face more substantial risks to their earnings and capitalisation.
The regulatory body’s decision to include leasing agreements, despite their absence from the original Court of Appeal judgment, demonstrates a commitment to ensuring consistent treatment across all vehicle financing products. Between 2007 and 2020, approximately 14.6 million car finance arrangements included discretionary commission structures, which were subsequently prohibited in 2021.
The FCA has advised financial institutions to prepare for a substantial increase in customer complaints, highlighting the growing significance of this issue within the UK’s financial services landscape.
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