Charlie Nunn, Lloyds Banking Group’s chief executive, has welcomed the government’s decision to intervene in a landmark car finance mis-selling case and expressed hope that it will help bring clarity to an industry under legal and regulatory pressure.
His comments follow the Treasury’s announcement that it will seek permission to raise its concerns in a pivotal Supreme Court hearing scheduled for April. The case stems from an October Court of Appeal ruling, which, if upheld, could expose motor finance providers to billions of pounds in compensation claims.
“We definitely welcome the intervention. We just believe the market needs clarity,” Nunn told reporters during the World Economic Forum in Davos. Highlighting that up to 80 per cent of new car buyers and a large segment of second-hand buyers rely on finance, he noted: “We need a well-functioning motor finance industry that supports consumers.”
The Court of Appeal ruling broadened what was initially a more limited inquiry by the Financial Conduct Authority (FCA). The result has sparked widespread fears of a compensation bill on a scale comparable to the infamous payment protection insurance (PPI) scandal, which cost the banking industry around £50 billion. Analysts at Moody’s have estimated potential redress at up to £30 billion, while HSBC puts the figure as high as £44 billion.
Lloyds, the UK’s biggest provider of motor finance, has already set aside £450 million to cover possible compensation. However, City analysts suspect that sum may increase if the Supreme Court upholds the Court of Appeal’s decision. The threat of spiralling liabilities has weighed heavily on Lloyds’ share price for the past year.
The Treasury’s involvement reflects a desire to prevent disruption in the motor finance market and ensure that any compensation imposed on lenders is “proportionate”. Nunn argues that the Court of Appeal ruling “is at odds with 30 years of regulation”, emphasising that it raises “broader investability questions about the UK”.
“We’ve had lots of our investors asking how the regulatory regime can be overwritten retrospectively, by the Court of Appeal so easily,” he said, warning that ongoing uncertainty could deter future investment in Britain’s financial services sector.
The FCA, which launched the initial inquiry into discretionary commissions paid by lenders to car dealers, has come under fire for its wide-ranging and retrospective approach. Discretionary commissions were banned in early 2021, but the regulator is investigating practices stretching back to 2007. Some industry figures privately criticise the FCA for fuelling market uncertainty and prolonging the dispute.
With the Supreme Court set to address the case in April, lenders and policymakers alike will be hoping for a definitive ruling that balances consumer interests with the stability of a critical sector of the UK economy.
