In the wake of a landmark Appeal Court ruling, the UK car finance industry is grappling with significant disruption as major lenders temporarily suspend new finance deals.
The unexpected decision has placed lenders under greater liability for non-disclosure of commission payments, leading to urgent consultations with regulators and ministers to find a swift resolution.
The court’s verdict, which imposes a duty on brokers to disclose the commission they receive to customers explicitly, has shaken the industry. At least three prominent finance providers—Close Brothers, MotoNovo, and Honda Finance Europe—announced immediate halts to new credit approvals, while others like BMW, Secure Trust Bank, Blue Motor Finance, and Zopa are also understood to have paused lending.
Gary Greenwood, a finance analyst at Shore Capital, warned of an imminent standstill in car sales, with financing accounting for the majority of new and used vehicle purchases. “There is a very real risk that the industry could grind to a halt,” he said. Lenders, he explained, are currently “too wary to provide credit to customers.”
With around 5,200 new cars sold daily in Britain—most financed by credit arrangements—the potential impact on the automotive sector and the broader economy is severe. Stephen Haddrill, director-general of the Finance and Leasing Association (FLA), criticised the ruling’s timing, coming just before a government budget aimed at stimulating growth. “This judgment undermines the assertion that the UK is becoming a more investible place for business,” Haddrill commented, adding that European counterparts are bewildered by the decision, as Britain’s credit regulations are already among the strictest.
Following the decision, lenders are required to disclose the size of commissions and seek explicit customer consent, processes that were previously discretionary. Haddrill indicated that without a resolution, vehicle sales could slow to a trickle. He noted that transactions are either on hold or being delayed to accommodate new compliance paperwork.
The Financial Conduct Authority (FCA) is closely monitoring the situation. Its chief executive, Nikhil Rathi, acknowledged the need for industry clarity and expressed hope that the Supreme Court would review the case soon to resolve ongoing uncertainty. The judgment’s reach extends beyond the car market, potentially impacting business equipment leasing and other credit-based transactions. For the motor finance industry, the financial liability could be considerable.
Banks exposed to the ruling’s effects are bracing for further impacts, drawing parallels to the costly payment protection insurance (PPI) scandal. Analysts predict substantial liabilities, with Santander UK expected to shoulder £1.1 billion in costs, while Lloyds Banking Group—already earmarking £450 million in provisions—could face a bill of up to £2.5 billion. Close Brothers, Barclays, and Investec have also announced possible repercussions.
Santander UK postponed its third-quarter results as it calculates potential liabilities linked to car finance. Parent company Grupo Santander noted the impacts on future financials remain uncertain, with the CFO indicating a probable cost below £500 million. However, Royal Bank of Canada analysts have a more cautious outlook, estimating liabilities that could reach £1.8 billion.
As the UK car finance industry navigates this legal and regulatory upheaval, industry leaders are appealing for an urgent solution to avert long-term damage.