Charlie Nunn, chief executive of Lloyds Banking Group, welcomed the government’s decision to intervene in the historic issue of illegal car sales and expressed his hope that it would help clarify an industry under pressure from laws and regulations.
His comments follow the Treasury’s announcement that it will seek permission to raise its concerns in an important High Court case scheduled for April. The case stems from a Court of Appeal ruling in October, which, if upheld, could expose car finance providers to billions of pounds in compensation claims.
“We really welcome the intervention. We just believe that the market needs clarity,” Nunn told reporters during the World Economic Forum in Davos. Highlighting that about 80 percent of new car buyers and the majority of used car buyers rely on financing, he noted: “We need an efficient auto finance industry that supports consumers.”
The Court of Appeal decision widened what was initially a limited investigation by the Financial Conduct Authority (FCA). The result sparked widespread fears of a compensation bill on a scale comparable to the payment protection insurance (PPI) scandal, which cost the banking industry an estimated £50 billion. Analysts at Moody’s have estimated a potential settlement of up to £30 billion, while HSBC put the figure at £44 billion.
Lloyds, the UK’s biggest car finance provider, has set aside £450 million to deal with potential compensation. However, City analysts suspect that this amount may increase if the Supreme Court upholds the Court of Appeal’s decision. The threat of rising debt has weighed heavily on Lloyds’ share price over the past year.
The Department of Finance’s involvement reflects a desire to prevent disruption to the car finance market and to ensure that any compensation offered to lenders is “fair”. Nunn says the Court of Appeal’s decision “contradicts 30 years of regulation”, stressing that it raises “wider questions about UK investment”.
“We have had many of our investors questioning how the regulatory regime can be rewritten retroactively, by the Court of Appeal so easily,” he said, warning that continued uncertainty could deter future investment in Britain’s financial services sector.
The FCA, which launched the first investigation into discretionary commissions paid by lenders to car dealers, has come under fire for its broad and backwards approach. Selective commissions were banned in early 2021, but the regulator is investigating practices dating back to 2007. Some industry figures privately criticize the FCA for fueling market uncertainty and increasing friction.
With the High Court hearing the case in April, lenders and policymakers alike will be hoping for a straightforward decision that balances the interests of consumers with the stability of a vital sector of the UK economy.
