Motor finance ruling hits shares in Close Brothers and Lloyds
Close Brothers loses court ruling on car loan commissions
Shares slide 21%, Lloyds loses 3.6%
UK regulator considering consumer redress scheme
Adds details, context
LONDON, Oct 25 (Reuters) -Shares in Close Brothers Group CBRO.L slumpedon Friday after aLondon courtruled that motor finance brokers must fully inform customers about commissions when taking out car loans, a judgment that also pulled Lloyds LLOY.L shares down.
The Court of Appeal's ruling, allowing three linked appeals brought by consumers, comes as Britain's finance regulatorconsiders a potential billion pound-plus consumer redress scheme following customer complaints about overcharging on commission when buying a car.
Close Brothers shares fell 21% and flirted with a 20-year low after the ruling, which the company saidit intended to appeal to the UK'sSupreme Court.
The group also said it would temporarily pause the writing of new UK motor finance business "while we review and implement any relevant changes to our documentation and processes to ensure compliance with these new requirements."
Shares in Lloyds, one of a number of key providers of motor finance, fell 3.6%, while Barclays shares dropped 1.4%. The FTSE 100 .FTSE index was down 0.2%.
Other key providers include Santander UK, part of Spain's Santander SAN.MC group.
Analysts have estimated the sector's total compensation bill could reach 16 billion pounds ($20.79 billion), making it the costliest consumer banking scandal in Britain since the faulty sales of payment protection insurance.
Lloydssaid in February it had set aside some 450 million pounds to cover the potential cost of the Financial Conduct Authority's probe of the motor finance sector.
The Court of Appeal said in a summary of its ruling that brokers owe a fiduciary duty to consumers, which imposes "an obligation on the part of the broker to act in the best interests of the customer and not to put themselves in a position of conflict".
This meant brokers cannot lawfully receive a commission from lenders "without obtaining the customer's fully informed consent to the payment", the court added.
Close Brothers said the ruling "sets a higher bar for the disclosure of and consent to the existence, nature, and quantum of any commission paid" than current FCA rules or other regulations in place at the time.
The FCA said last month it was extending a pause to the deadline for motor finance companies to respond to complaints, and would set out the next steps in its review in May 2025 – in part due to the Court of Appeal's pending ruling.
This month, Barclays BARC.L brought a legal challenge to a key ruling on motor finance commission in a case expected to affect the FCA's potential consumer redress scheme.
($1 = 0.7704 pounds)
Reporting by Sam Tobin and Tommy Reggiori Wilkes in London and Aby Jose Koilparambil in Bengaluru; Editing by Shilpi Majumdar, Mrigank Dhaniwala, Sachin Ravikumar and Louise Heavens
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