Lloyds Banking Group PLC (LSE:LLOY) chief executive Charlie Nunn has warned that the uncertainty caused by the recent motor finance compensation chaos court case threatened the “investability” of the UK.
Speaking at an FT banking conference, Nunn said the decision of the Appeal Court to rule that it was unlawful not to disclose commission payments to people using taking out loans to buy cars had upended the regulation that government the sector for years.
Lloyds’ Black Horse subsidiary is the UK’s largest car finance provider.
City analysts predict Lloyds is staring down the barrel of billion pounds of compensation if the ruling is upheld with a raft of other lenders also facing huge bills.
Nunn said: “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".
Car finance sales were already under scrutiny by the Financial Conduct Authority before the recent ruling with “discretionary commission arrangements” (DCAs) banned in 2021.
Lenders have warned that the appeal court has widened that scope to all cars bought with loans and even potentially other areas of consumer finance.
At the conference, Nunn urged the government to intervene and work with industry and regulators ahead of a final ruling on the Court of Appeal judgment.
Motor finance is "a really important part of the British economy", he said, with 85% of people borrowing to buy a new car and roughly 60% for second-hand cars paid for with loans.
"I’ve met over 100 investors in the last few weeks, and investors are telling us that they’re really concerned about the uncertainty this creates on that sector, on the financial sector, and the UK more broadly," Nunn added.
"Investors are looking at this and saying this principle of the courts coming up with decisions independently from the regulation, which is then having a significant retrospective lookback, is already bleeding across the whole economy."
"The industry, both financial services and transport, the regulators, and the government are going to need to come together to provide that certainty for consumers, for the car industry and ...the UK economy."
Shares in Lloyds rose 0.5% to 53.2p.