A view of the City of London and the Royal Exchange as the glass architecture of Tower 22 Bishopsgate disappears into the mist on November 6, 2024 in London, England.
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Britain’s car finance industry is in turmoil, with analysts warning of a worst-case scenario on the scale of the country’s most expensive consumer banking scandal.
The growing crisis dates back to a landmark ruling by the UK Court of Appeal in late October. The court ruled that it is illegal for car dealers to receive bonuses from banks that provide car financing without the customer’s informed consent.
The decision caught many in the car finance industry by surprise and appears to pave the way for a multi-billion pound bailout scheme to compensate consumers.
The case compares to Britain’s Payment Protection Insurance (PPI) scandal, which is estimated to have cost banks more than 50 billion pounds ($63.8 billion) and is considered the biggest misselling scandal in the country’s financial services history. is encouraging.
Britain’s financial watchdog, the Financial Conduct Authority, announced on Wednesday that it would write to the Supreme Court to speed up its decision on whether to give lenders the green light to appeal.
Banks remain in a “stalemate”
The FCA said it was likely to see a sharp rise in complaints from car lending organizations in recent weeks and would consider intervening “to share our expertise” if the appeal was granted.
It called on car finance organizations to consider setting aside financial reserves to resolve the large number of complaints.
Morningstar equity analyst Niklas Comer said British banks have been in a “stalemate” since the Oct. 25 court ruling. Lloyd’s It is believed to be most at risk through its Blackhorse business. barclays Comer said there is some exposure, but “not enough to be meaningful.”
Monday, October 21, 2024 at a Lloyds Banking Group Plc bank branch in London, UK.
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“It can be said that the Court of Appeal’s decision came as a surprise not only to the banks, but also to the FCA. According to the banks, they had followed the rules and guidelines set out by the FCA, but these were inconsistent with the FCA’s regulations.” New Court of Appeals decision,” Comer told CNBC via email.
Mr Comer said: “Therefore, there is significant uncertainty as to which set of rules banks will have to comply with. The FCA will consider potential Supreme Court rulings before making a decision on this issue. He said he would wait for the results.
“If this judgment stands, the FCA will need to change its rules around disclosure. Initially, the FCA noted that this issue should not have the same proportions as the mis-selling of PPIs, but the new If the ruling is upheld, the worst-case scenario will occur.”The magnitude of the impact is about the same. ”
Financiers are ‘likely to withdraw from the market’
Benjamin Thoms, UK banking analyst at RBC Capital Markets, said if the Supreme Court upheld the lower court’s ruling, the downside impact on the car finance sector, including banks and non-banks, could be up to £28bn. He said there is.
“Some lenders are likely to exit the market, meaning people looking to buy a car will have fewer options and higher prices,” Toms said.
“Other types of financing, such as premium finance, are also attracting attention and could potentially lead to legal issues,” he added.
London taxis queue at a taxi rank outside Fenchurch Street station on October 14, 2024 in London, England.
John Keeble | Getty Images News | Getty Images
In January, the FCA launched an investigation into the motor finance industry to investigate whether there was widespread fraud associated with discretionary committee arrangements (DCAs) before they were banned in 2021.
The agency said Wednesday it is currently considering the impact of the appeals court’s decision on its review.
Influential ratings agency Fitch warned earlier this month that it placed Close Brothers Group’s rating on “Rating Watch Negative” due to its “high exposure” to auto finance.
Other financial institutions with “significant involvement” in motor finance financing include Barclays, Investec, Lloyds and Santander UK, according to Fitch.
Lloyds, the UK’s largest car finance company, has set aside £450m in financial reserves.
