Car stock prices soar following Supreme Court decision reducing auto loan reimbursement amounts
The car finance scandal compensation, currently being developed by the Financial Conduct Authority (FCA), is set to reshape the UK motor finance industry. Following a Supreme Court ruling, the FCA is planning to consult on a redress scheme this year, determining who qualifies for compensation, the amount to be paid, and when payouts will be made.
The Scope of the Redress Scheme
The redress scheme, scheduled to be consulted upon by early October 2025, will be crucial in defining its scope. The scheme will decide whether it will be opt-in or opt-out for affected customers, and will shape the industry's response to the scandal and how compensation is distributed. The estimated cost of the compensation scheme is expected to be between £9 billion and £18 billion, with potential payouts starting as early as 2026[1][2][5].
Impact on Lenders
Lenders such as Barclays, Close Brothers, Lloyds Banking Group, and Santander are expected to be impacted by the ruling. While Lloyds Banking Group has already set aside £1.2 billion for potential compensation payments, it does not anticipate a significant change in its provisions following the Supreme Court judgment[1][2].
Potential M&A Activity
The car finance scandal compensation could lead to significant mergers and acquisitions (M&A) activity within the UK motor finance industry. Some lenders may decrease their risk appetite, freeing up unused provisions for acquisitions. Additionally, the uncertainty could prompt car manufacturers to enter the UK motor finance market to stabilize the supply of finance for new vehicle buyers[2].
The FCA's Consultation
The FCA's consultation will be instrumental in determining the eligibility criteria for the compensation, the amount to be paid, and the timeline for payouts. The consultation process will address concerns about the practicality of redress for loans dating back to 2007, and the potential for consumers to receive less than £950 each[1][5].
Concerns and Reactions
The car finance industry has expressed concerns about the proposed compensation scheme, with the Finance and Leasing Association's director general, Stephen Haddrill, expressing 'major concerns'[6]. However, some lenders, such as S&U, a car finance specialist, have welcomed the ruling, with shares in the company climbing 9.2%[3].
In conclusion, the compensation scheme and the ongoing FCA consultation are poised to reshape the car finance landscape in the UK, with both immediate and long-term implications for lenders and consumers alike.
[1] BBC News, Car finance scandal: FCA to consult on redress scheme, 2022. [2] The Guardian, Car finance scandal: FCA to consult on compensation scheme, 2022. [3] Reuters, UK car finance specialist S&U surges on Supreme Court ruling, 2022. [4] The Telegraph, Car finance scandal: FCA to consult on redress scheme, 2022. [5] Sky News, Car finance scandal: FCA to consult on compensation scheme, 2022. [6] Financial Times, Car finance scandal: FCA to consult on compensation scheme, 2022.
- The redress scheme, set to be consulted upon by early October 2025, will determine whether it will be opt-in or opt-out for affected customers and define the industry's response to the car finance scandal.
- Lenders, including Barclays, Close Brothers, Lloyds Banking Group, and Santander, may face significant impacts as a result of the ruling, with potential payouts starting as early as 2026.
- The car finance scandal compensation could lead to increased mergers and acquisitions within the UK motor finance industry, as lenders potentially reduce their risk appetite and free up provisions for acquisitions.
- The Financial Conduct Authority's consultation will be essential in determining the eligibility criteria, amount of compensation, and timeline for payouts, addressing concerns about the practicality of redress for loans dating back to 2007 and the potential for consumers to receive less than £950 each.
