UK Supreme Court Ruling Favors Lenders in Motor Finance Case, Stocks Surge

UK lenders such as Lloyds, Close Brothers, and Barclays have seen their shares rise after a Supreme Court ruling in a car finance case. The court overturned most of a lower court ruling, saying banks should only pay compensation in the most serious cases of motor finance misselling. The UK's Financial Conduct Authority estimates lenders may be on the hook for at least £9 billion, but this is less than the £30 billion-plus bill some analysts had feared.

UK lenders such as Lloyds, Close Brothers, and Barclays have seen their shares rise following a Supreme Court ruling in a car finance case. The court overturned most of a lower court ruling, stating that banks should only pay compensation in the most serious cases of motor finance mis-selling. The UK's Financial Conduct Authority (FCA) estimates that lenders may be on the hook for at least £9 billion, which is less than the £30 billion-plus bill some analysts had feared [1].

The Supreme Court ruled that lenders won't have to pay compensation to millions of motorists over car finance loans. The ruling focused on whether car dealers had a duty to act in the interests of car buyers when selling cars on finance. The court sided with finance companies in two out of three test cases, reducing the scope for large-scale claims for compensation [2].

The ruling is likely to reduce the scope for very large-scale claims for compensation from millions of motorists, according to Theo Leggett. The Treasury has acknowledged the issues highlighted by the court case and is working with regulators and the industry to understand the impact for both firms and consumers [3].

Despite the ruling, some compensation is still likely for car buyers who signed car finance agreements containing a "discretionary commission arrangement" (DCA). A DCA is where a car dealer earned a commission from the bank or lender depending on how much interest the dealer got customers to sign up to in their car finance agreement. The higher the interest rate customers agreed to, the higher the commission the dealer got [4].

The FCA will decide whether to set up a redress scheme for consumers who signed car finance agreements where dealers secured big commissions from banks in exchange for getting customers to agree to pay high interest rates. The FCA aims to ensure that consumers are fairly compensated and that the motor finance market works well [5].

The ruling reflects a basic truth: a car dealer is pursuing their own commercial interest. The Supreme Court found that this duty doesn't suddenly organically spring up between a car dealer and a customer just because they have agreed a good price for a car [6].

In summary, the Supreme Court's ruling has significant implications for the motor finance industry. While lenders may face substantial compensation claims, the scope for large-scale claims has been significantly reduced. The FCA is currently assessing the potential impact and will decide on a redress scheme in the coming days.

References:
[1] https://www.bbc.com/news/live/cqjy087n9j2t
[2] https://www.bbc.com/news/live/cqjy087n9j2t
[3] https://www.bbc.com/news/live/cqjy087n9j2t
[4] https://www.bbc.com/news/live/cqjy087n9j2t
[5] https://www.bbc.com/news/live/cqjy087n9j2t
[6] https://www.bbc.com/news/live/cqjy087n9j2t