Close Brothers Group PLC (LSE:CBG),Lloyds Banking Group PLC (LSE:LLOY) and other motor finance lenders could potentially be facing millions more claims for motor finance compensation after the FCA widened the scope of its review.
Following a Court of Appeal judgment in three landmark cases against Close Bros and Firstrand Bank, the FCA on Wednesday said it had widened its probe to cover non-discretionary loan arrangements as well as discretionary deals.
Originally, its investigation was aimed at discretionary arrangements and whether customers were sold overly expensive car loans to boost commissions.
DAs were banned in 2021, but today the FCA said it was going to look at any car finance deals that included commission, which means any driver who bought a car with with a loan might potentially have a claim.
One broker has already estimated the costs of compensation at £19 billion, but today’s move by the FCA will potentially add billions to that and has prompted the regulator to extend its deadline to give firms more time to prepare.
One source suggested it opened the floodgates for 'millions of claims' as the investigation will cover any car bought between 2007 and 2021 where commission fees were involved.
In scale, it could potentially even outstrip the £50 billion cost of the payment protection income or PPI scandal, according to some observers.
In a note today, broker Pannure Liberum said that giving the firms more time to prepare for claims for non-discretionary commission motor finance complaints made sense.
“The proposed extensions will cover at least until the Supreme Court decides whether to hear the appeal and assuming it does, we expect it will run until slightly beyond its final decision,” it added.
Panmure Liberum added that in the case of interventions into high-cost short-term credit, it was the cost of processing and appealing claims, rather than the cost of redress itself, that was the most crippling.
“Encouragingly the FCA has been involved with discussions with industry and the government and will write to the Supreme Court asking for a swift decision and consider intervening to share its expertise, which suggests at least some recognition of the potential ramifications across the finance industry that could arise as a result of the recent ruling,” the broker said.
Panmure Liberum has a 'hold' rating and a 530p target on Close Bros.