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The UK's highest court is set to hear an appeal by car loan providers in a landmark mis-selling case that has put the country's financial services industry on the hook for potential billions of pounds in damages.
A copy of the decision, seen by the Financial Times, shows that the Supreme Court granted the lenders permission to appeal the decision. Previous ruling From the Court of Appeals, which sided with consumers who complained about “secret” commissions on car loans.
Shares of Close Brothers, one of the banks that lost in the previous ruling, rose 8 percent after the court agreed to hear the case. Shares in Lloyds Banking Group, which owns the UK's largest car finance provider Blackhorse, rose more than 4 percent.
Lord Robert Reid, Chief Justice of the Supreme Court, is scheduled to hear the case alongside Lord Patrick Hodge, Vice President, and Lord David Lloyd-Jones. It is scheduled to be heard between January and April next year.
The Financial Conduct Authority on Wednesday welcomed the “speed of the Supreme Court’s decision” given “the potential impact of any ruling”. The watchdog added that it was “considering whether to formally intervene in the case to share our expertise to assist the court in the substantive appeal.”
An October ruling by the Court of Appeal sent shockwaves through the UK banking system when it ruled it was unlawful for banks to pay a commission to a car dealer without obtaining the customer's informed consent.
The ruling raises the possibility that banks will have to pay widespread compensation claims on many of the loans they made to consumers to buy cars, a market worth £52bn last year alone.
The Financial Supervision Authority launched a review in January Estimated commissions in car financingwhich incentivized agents to place customers on a higher interest rate and has been banned since 2021.
But the appeals court ruling went beyond discretionary commissions to include fixed fees and means banks could be on the hook for making up a much larger proportion of past car loans.
Lenders rushed to update their commission disclosures in the wake of the ruling. Close Brothers has temporarily suspended all car lending operations and Lloyds has temporarily suspended commission payments for new car finance loans.
The Financial Conduct Authority (FCA) said it is likely to impose an industry-wide compensation scheme to deal with a A flood of complaints Of the tens of thousands of people who have borrowed to buy a car in recent years.
Financial Ombudsman Service He said On Wednesday, it expected to receive more than 47,000 complaints about auto financing in the year through April, nearly four times last year's level.
Stephen Braviner Roman, the FCA's general counsel, told MPs on Tuesday that the nature of any compensation plan is “one of the issues we will have to grapple with”, although it will wait until the Supreme Court provides legal clarity.
He said the FCA would have to decide between a system-wide scheme in which lenders proactively offer compensation to all eligible customers or a complaints-based system where people must proactively seek compensation.
Lloyd's had already booked a £450m provision to cover potential future compensation costs before the Court of Appeal ruling, while Close Brothers launched a £400m capital plan in response.
Kevin Dworkin, director of law firm HD Law, which represented Marcus Johnson, one of the plaintiffs in the landmark case, said: “Lenders continue to refuse to make any form of compensation payments, despite strong criticism of their behavior from the Financial Conduct Authority and the Financial Conduct Authority. Recently from the Court of Appeal.
“We hope that a final decision from the Supreme Court will put an end to all of this.”
Adrian Daly, Director of Car Finance at the Commercial Finance and Leasing Authority, said: “Being allowed to appeal is very good news indeed. This expedited process will give the car finance sector the certainty it needs.
Close Brothers said it would not comment on the appeal process.
Analysts said the controversy over car finance was similar to the Payment Protection Insurance scandal, which cost banks £50 billion. Moody's analysts estimate that total compensation costs for car finance companies could reach £30 billion.
The lawyers also said the Court of Appeal ruling exposed other areas of UK consumer finance where brokers earn “secret” commissions in the face of potential legal challenges from clients.
