UK watchdog urges Supreme Court to act as $21 billion motor finance scandal looms

By Sinead Cruise and Lawrence White

LONDON (Reuters) – Britain’s Financial Conduct Authority is pressing the Supreme Court to expedite a decision to permit lenders to appeal a crucial judgment that may pave the way for a multi-billion pound consumer redress scheme linked to motor finance commissions.

The watchdog said it would also consult on extending the time firms have to respond to complaints from borrowers, after the Court of Appeal in October ruled it was unlawful for car dealers to receive a commission from banks providing motor finance, without obtaining the customer’s informed consent.

The FCA statement on Wednesday is the latest twist in a slow-burning probe into banks’ historical sales practices that analysts have said could cost the industry up to 16 billion pounds ($20.37 billion), in what could become Britain’s costliest consumer banking scandal since the faulty sales of payment protection insurance.

Since the October judgment, the FCA said it has undertaken extensive industry engagement and found that firms are likely to receive a high volume of complaints.

Any complaint extension would allow them to prevent “disorderly, inconsistent and inefficient outcomes” for consumers making complaints, motor finance firms and the market, the FCA said.

The watchdog is currently probing whether there was widespread misconduct related to discretionary commission arrangements, or DCAs, before they were banned in 2021.

It hopes to uncover whether consumers have lost out and what compensation might be owed, in keeping with its Consumer Duty principle. It urged firms on Wednesday to consider whether they should make financial provisions in order to resolve such complaints.

As part of its review, the FCA already granted motor finance firms and consumers more time to handle or make complaints where a DCA was involved.

SHARES SUFFER

The FTSE index of UK banks rose 0.5% on Wednesday morning, slightly outperforming a flat broader FTSE 100 index.

The growing scrutiny on banks’ past practices has weighed heavily on some lenders’ share prices this year, with Close Brothers, one of those most involved in car finance, falling 75%.

Banks have also suffered from uncertainty about the final amount of compensation they could pay out.

Analysts at Jefferies said on Tuesday that redress could cost Lloyds Banking Group 2.5 billion pounds if required to repay all commissions from 2007-2020.

Lloyds has already set aside a 450 million pounds to cover possible redress.

($1 = 0.7854 pounds)

(Reporting By Sinead Cruise and Lawrence White; Editing by Sharon Singleton)