Shares of Lloyds Banking Group (LSE:LLOY), Close Brothers (LSE:CBG) Group plc, and other UK lenders saw gains after the Supreme Court issued a ruling impacting car finance charges, while the Financial Conduct Authority (FCA) prepares to consult on potential compensation plans.
By 10:45 a.m., shares in Lloyds, Close Brothers, Secure Trust Bank, Barclays (LSE:BARC), S&U PLC, CBRO, STBS, and SUS had risen between 2% and 19%.
The Supreme Court’s decision, delivered last Friday, overturned important parts of a prior Court of Appeal ruling in the cases of Wrench, Johnson, and Hopcraft. The court determined that car dealerships acting as credit brokers do not owe fiduciary duties to customers, and commissions paid in such transactions are not considered bribes.
However, the court ruled in Johnson that an unfair relationship existed between lender and borrower under the Consumer Credit Act 1974.
The judgment highlighted that whether an arrangement is unfair depends heavily on the details of each case. In this instance, the court ordered repayment of the commission along with commercial interest to the claimant.
Lloyds stated its existing motor finance provisions already accounted for various possible outcomes, including the Supreme Court’s ruling. Although the judgment clarifies issues around fiduciary duty and bribery, Lloyds cautioned that regulatory uncertainty remains, especially considering the FCA’s forthcoming actions.
On Saturday, the FCA announced plans to launch a consultation by early October on a potential industry-wide compensation scheme related to discretionary commission agreements. The regulator may also consider broadening the scheme’s scope to include other commission models.
Lloyds noted that, based on a preliminary review and pending the FCA consultation, any changes to its provisions are unlikely to be significant. The bank will continue to monitor the situation and keep the market informed.
Close Brothers Group plc and Close Brothers Finance plc, following up on their August 2 announcement, confirmed their awareness of the FCA’s planned consultation on an industry-wide compensation plan.
The group welcomed the consultation process and indicated it intends to actively participate in discussions with the regulator moving forward.
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