UK lenders see shares jump after court ruling

A recent supreme court ruling has significantly affected UK car finance lenders and their compensation liabilities.

UK lenders benefit from court ruling in car finance scandal

Shares in UK lenders rose sharply following a supreme court ruling that reduced the potential compensation bill from the car finance scandal. Close Brothers, particularly impacted, saw its shares climb by 27%. Lloyds Banking Group also experienced a 5.5% increase, as did Barclays and FirstRand. The ruling alleviated a looming £44 billion liability, paving the way for a smaller compensation scheme by the Financial Conduct Authority. This new scheme plans to cost between £9 billion and £18 billion and will focus on compensating drivers overcharged due to commission arrangements since 2007. However, issues remain regarding the scheme's scope and potential challenges from the Financing and Leasing Association if it offers disproportionate payouts.

This ruling marks a critical shift for the UK car finance industry, which has faced increasing scrutiny over past lending practices. The reduction in liabilities presents a moment of relief for lenders but raises questions about fairness for consumers. The focus of the compensation scheme on discretionary commission arrangements may not address the broader issues consumers faced. It highlights the ongoing tension between regulatory measures and industry interests, as evidenced by the FLA's threat to challenge the compensation provisions. The outcome of the FCA's consultation will be crucial in determining the scheme's final structure and the industry's reaction.

Highlights

The implications of this ruling will continue to unfold as the FCA moves toward finalizing its compensation approach.