Lloyds boss warns of UK ‘investability problem’ after motor finance ruling

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Lloyds Banking Group chief executive Charlie Nunn said the UK faces an “investability problem” after a landmark court ruling in October left the motor finance industry in disarray.

The industry has been reeling since the Court of Appeal ruled it was unlawful for car dealers to receive commissions from motor finance providers, unless such payments had been disclosed to the customer and consent had been given.

Industry executives and lawyers said the court’s decision to side with consumers who had complained about “secret commissions” on car loans upended the regulation that had governed the sector for years.

It also raised the spectre of lenders having to pay tens of billions of pounds in compensation. Lloyds owns Black Horse, the UK’s largest car finance provider.

“What is unique here and unique for the UK relative to other economies [is that] we have a legal decision . . . that is at odds with the last 30 years of regulation,” Nunn told the FT Global Banking summit on Wednesday.

“Investors are telling us they’re really concerned about the uncertainty that . . . it creates an investability problem,” he added.

Shares in some of the biggest providers of motor finance, including FTSE 250 lender Close Brothers, have fallen sharply since the court ruling.

Car finance sales practices had already drawn the scrutiny of regulators. In 2021, the Financial Conduct Authority banned “discretionary commission arrangements” (DCAs) in which the interest rates customers paid on loans were linked to fees earned by dealers.

The regulator opened an investigation this year into potential historic mis-selling of DCAs. Lloyds has set aside £450mn to cover the potential costs of the FCA probe.

Nunn on Wednesday urged the government to intervene and work with industry and regulators ahead of a potential Supreme Court ruling on the Court of Appeal judgment.