The chief executive of Lloyds Banking Group, Charlie Nunn, has warned that a landmark legal ruling on motor finance commissions poses a significant threat to the UK economy and the consumer finance sector.
Speaking at the Financial Times Global Banking Summit earlier this month, Nunn criticised the October Court of Appeal decision, which found that lenders cannot pay commissions to motor finance brokers without securing the customer’s fully informed consent.
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The ruling has created regulatory uncertainty, with expectations rising that the Financial Conduct Authority (FCA) may launch a multibillion-pound redress scheme to address breaches of now-banned discretionary commission arrangements.
“The level of uncertainty means we just don’t know what it’s going to mean yet,” Nunn said. He added that the decision “creates an investability problem” and is “at odds with the last 30 years of regulation.”
Lloyds, the UK’s largest motor lender through its Black Horse division, is among the most exposed financial institutions. Its share price has dropped 14 per cent since the ruling, and the bank has already set aside £450m for potential costs related to the FCA’s review. Analysts at RBC have estimated that Lloyds could face a total profit hit of up to £3.9bn.
Nunn emphasised the economic importance of motor finance, which underpins 85 per cent of new car purchases and 60 per cent of second-hand sales. He also expressed concern about the chilling effect on investor confidence. “It’s making it harder for our investors to have the confidence to provide us the capital we need to make consumer finance a thriving industry,” he said.
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By GlobalDataThe decision could set a precedent for other areas of consumer finance, raising further concerns. Close Brothers and South Africa’s FirstRand, the lenders involved in the test case, have signalled their intention to appeal to the Supreme Court. However, Nunn cautioned that the uncertainty is already having wider repercussions.
“This principle of the courts coming up with decisions independently from the regulation, which is then having a significant retrospective lookback, is already bleeding across the whole economy,” he said, calling for collaboration between industry stakeholders, regulators, and the government to restore certainty.
Nunn concluded by highlighting the broader stakes: “Providing clarity is essential for consumers, the car industry, and the UK’s investability as a whole.”
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