Supreme Court Ruling Spurs Lender Shares Amid Car Finance Compensation Debate
Published 4 August 2025
Highlights
- The Supreme Court ruling reduced the potential compensation bill for lenders involved in the car finance scandal, causing a surge in their share prices.
- The Financial Conduct Authority (FCA) plans to consult on a compensation scheme, potentially covering loans dating back to 2007, with payouts likely under £950 per deal.
- Up to 14 million drivers could be eligible for compensation due to mis-sold car loans, but concerns exist over the practicality of the redress plan.
- The Finance and Leasing Association (FLA) criticized the proposed scheme as "completely impractical" due to potential lack of records from 2007.
- The FCA's consultation will address challenges in determining what constitutes "unfair" commission arrangements.
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Rewritten Article
Headline: Supreme Court Ruling Spurs Lender Shares Amid Car Finance Compensation Debate
Shares in major UK lenders soared following a Supreme Court ruling that significantly reduced the anticipated compensation bill related to the car finance scandal. The ruling, which favored lenders, has led to a surge in share prices, with Close Brothers seeing a 23.5% increase and Lloyds Banking Group rising by 9% to a decade high.
The Financial Conduct Authority (FCA) announced plans to consult on a compensation scheme for mis-sold car loans, potentially affecting up to 14 million drivers. The scheme, expected to cost between £9bn and £18bn, will address loans dating back to 2007, although payouts are likely to be less than £950 per deal. The FCA aims to make customers aware of their eligibility and the steps needed to claim compensation.
However, the Finance and Leasing Association (FLA) has criticized the proposed redress plan as "completely impractical," citing concerns over the availability of records from 2007. Stephen Hadrill of the FLA highlighted the challenge of determining eligibility without sufficient documentation. "It's not just firms that don't have the details about contracts back then, the customers don't either," he told the BBC.
The Supreme Court ruling also left open the possibility of compensation for particularly large commissions deemed unfair. The FCA's head, Nikhil Rathi, acknowledged the complexity of resolving cases where documentation is incomplete, suggesting some disputes might require court intervention.
Lloyds, the UK's largest motor loan provider, had previously set aside £1.2bn for compensation and stated that any additional provisions would depend on the FCA's consultation outcome. Close Brothers, which has already allocated £165m, expressed readiness to engage with the FCA on the consultation.
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Scenario Analysis
The FCA's upcoming consultation will be crucial in shaping the final compensation scheme, with potential implications for both lenders and consumers. If the scheme is deemed too broad or impractical, it could face legal challenges from industry bodies like the FLA. Conversely, a well-structured plan could provide closure for millions of affected drivers and restore confidence in the car finance sector.
Experts suggest that the consultation will need to balance the interests of consumers seeking redress with the operational realities faced by lenders. The outcome could set a precedent for how similar financial mis-selling cases are handled in the future, influencing regulatory approaches and industry practices.
Shares in major UK lenders soared following a Supreme Court ruling that significantly reduced the anticipated compensation bill related to the car finance scandal. The ruling, which favored lenders, has led to a surge in share prices, with Close Brothers seeing a 23.5% increase and Lloyds Banking Group rising by 9% to a decade high.
The Financial Conduct Authority (FCA) announced plans to consult on a compensation scheme for mis-sold car loans, potentially affecting up to 14 million drivers. The scheme, expected to cost between £9bn and £18bn, will address loans dating back to 2007, although payouts are likely to be less than £950 per deal. The FCA aims to make customers aware of their eligibility and the steps needed to claim compensation.
However, the Finance and Leasing Association (FLA) has criticized the proposed redress plan as "completely impractical," citing concerns over the availability of records from 2007. Stephen Hadrill of the FLA highlighted the challenge of determining eligibility without sufficient documentation. "It's not just firms that don't have the details about contracts back then, the customers don't either," he told the BBC.
The Supreme Court ruling also left open the possibility of compensation for particularly large commissions deemed unfair. The FCA's head, Nikhil Rathi, acknowledged the complexity of resolving cases where documentation is incomplete, suggesting some disputes might require court intervention.
Lloyds, the UK's largest motor loan provider, had previously set aside £1.2bn for compensation and stated that any additional provisions would depend on the FCA's consultation outcome. Close Brothers, which has already allocated £165m, expressed readiness to engage with the FCA on the consultation.
What this might mean
The FCA's upcoming consultation will be crucial in shaping the final compensation scheme, with potential implications for both lenders and consumers. If the scheme is deemed too broad or impractical, it could face legal challenges from industry bodies like the FLA. Conversely, a well-structured plan could provide closure for millions of affected drivers and restore confidence in the car finance sector.
Experts suggest that the consultation will need to balance the interests of consumers seeking redress with the operational realities faced by lenders. The outcome could set a precedent for how similar financial mis-selling cases are handled in the future, influencing regulatory approaches and industry practices.
