LONDON (Reuters) -The UK’s Supreme Court will announce a long-awaited ruling on car finance commissions on Friday that could influence whether major banks face a multibillion-pound compensation bill.
British lender Close Brothers and South Africa’s FirstRand want to overturn a landmark Court of Appeal judgment, which said brokers must have fully informed consent from customers in order to receive a commission from lenders.
The ruling in three linked cases sent shockwaves through the 40 billion-pound ($53 billion) a year motor finance industry and has weighed heavily on the stocks of the most exposed players, such as Close Brothers and Lloyds.
Lloyds has set aside 1.15 billion pounds for potential payouts, while Banco Santander’s UK arm has set aside 290 million pounds and Barclays 95 million pounds.
The Financial Conduct Authority, which regulates the sector, is mulling a redress scheme that analysts have warned could cost the banking industry tens of billions of pounds.
The FCA has said it will confirm whether it will implement a redress scheme within six weeks of the Supreme Court’s ruling.
The Court of Appeal said in October 2024 that lenders were liable to consumers when the commission was “secret”, and can be liable when disclosure of the commission was insufficient to obtain informed consent.
Lawyers for the FCA argued at April’s Supreme Court appeal that the Court of Appeal went “too far”, boosting lenders’ hopes that any hit they face may be pared back.
The potential wider impact of the case was highlighted by media reports that British finance minister Rachel Reeves might legislate to prevent lenders from taking a financial hit which could hurt her attempts to boost economic growth.
A Treasury spokesperson said the ministry did not comment on speculation.
“We want to see a balanced judgement that delivers compensation proportionate to losses that consumers have suffered and allows the motor finance sector to continue supporting millions of motorists to own vehicles,” the spokesperson said. “It is now appropriate to let the appeals process run its course.”
The Supreme Court will give its ruling after 1535 GMT on Friday, after financial markets have closed in London. The court said: “No inference should be drawn from the timing of the hand-down (of the judgment) as to the outcome of the appeals.”
($1 = 0.7567 pounds)
(Reporting by Sam Tobin; Editing by Mark Potter and Kate Mayberry)
