Shares in UK motor finance lenders had a volatile opening this morning as markets digested the final rules of the financial watchdog’s industry-wide redress scheme.
Lloyds Banking Group – the owner of the nation’s largest motor finance lender Black Horse – crept up 0.4 per cent at open to just shy of the 92p mark.
Meanwhile, the bank that took the motor finance scandal took the Supreme Court, Close Brothers, had a choppy opening. The stock rose one per cent at the starting bell, before quickly losing ground. Shortly after open, the bank tumbled into the red, down 0.2 per cent to 380.80p, before moving to broadly flat.
Barclays, which near quadrupled its provisions for payouts last year to £325m, rose 0.2 per cent to 385.70p.
The Financial Conduct Authority’s (FCA) publication of its scheme comes amid a volatile time for markets, with Lloyds having shed over eight per cent in the month as investors grew risk averse following the outbreak of war in Iran.
The regulator’s scheme cut the costs bill for banks to £9.1bn from a previous £11bn after narrowing the scope of eligible agreements to 12.1m from 14.2m.
The programme follows lenders coming under fire for the use of discretionary commission arrangements ) – ‘secret’ commission paid by lenders to car dealerships without consumer knowledge. Following a Supreme Court battle last Summer, lenders were handed a lukewarm win after the top Court sided with the banks on two out of three appeals.
But the highest court in the land left the door open for a regulatory redress after siding with one claimant on the grounds of “unfairness” with their 55 per cent commission.
‘Highly likely’ for another motor finance legal battle
The FCA’s final rules issue a whole host of changes from the initial October proposals but analysts across the City have remained torn on whether to hail it as a direct win. Whilst the higher commission rate – a key area of contention – was raised to 39 per cent, from 35 per cent, deals going back to 2007 were still eligible.
In a statement on Tuesday morning, Lloyds told markets the scheme required “careful analysis”.
It added it was “assessing the implications and impact of the final rules” and would update the market “when appropriate”.
The Finance and Leasing Association stopped short of endorsing the FCA’s scheme on Monday, stating the watchdog had “clearly endeavoured” to make the scheme “more proportionate” but added it would need time to assess the market impact.
The FCA has said it would run two schemes, one for 2014 to 2024 deals, which will allow payments to begin being made this year, and a second relating to deals pre-2014. The deadline for this scheme to be set up is August 2026.
RBC analysts suggested the FCA appeared to “envisage” further legal action with this month and added “it was highly likely that at least one, if not multiple, of the many interested parties will ask the administrative courts to review the scheme.”
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