The deepening car finance crisis could deliver a major blow to Britain’s economic prospects, according to the head of the country’s largest retail bank.
Charlie Nunn, chief executive of Lloyds Bank, warned that uncertainty caused by recent court rulings was undermining investor confidence and risking a multi-billion-pound claims storm reminiscent of the PPI scandal.
Mr Nunn’s concerns follow a landmark Court of Appeal ruling which deemed hidden commissions paid to car salesmen by banks as illegal. The judgment, handed down last month, has effectively overturned a longstanding industry practice and appears to contradict guidance previously issued by the Financial Conduct Authority (FCA). The court’s decision that sales staff have a “fiduciary duty” to secure the best deal for consumers has raised the prospect that similar claims could spread beyond car finance into other areas of consumer lending.
Speaking at an event hosted by the Financial Times, Mr Nunn said: “Investors are looking at this and saying this principle of the courts coming up with decisions independently from the regulation … is bleeding across the whole economy.” He suggested that the uncertainty stemming from the ruling, combined with regulatory indecision, was making it harder for foreign and domestic investors alike to commit funds to UK financial services and the economy more broadly.
The fallout is expected to be costly. Industry observers have likened the situation to the payment protection insurance (PPI) scandal, which inflicted tens of billions of pounds in redress on UK lenders. Preliminary estimates suggest that motor finance compensation could top £16 billion, with some claims management firms warning of as much as £40 billion in potential payouts.
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