Motor finance crisis shakes British economy and investor confidence

The effects of the motor finance crisis are significantly impacting the British economy and undermining investor confidence, according to Lloyds Bank CEO Charlie Nunn. Since a landmark ruling by the Court of Appeal, uncertainty has grown, increasingly diminishing international investors' interest in investing in British banks and the economy. Last month, the court decision declared that hidden commissions paid by banks to car dealers for brokering car loan agreements are to be considered illegal. This decision challenges a longstanding practice and contradicts the directives of the UK's Financial Conduct Authority (FCA). Equally significant is the finding that sellers have a fiduciary duty to secure the best deal for consumers – a decision that could have far-reaching implications for various types of loans if the Supreme Court agrees. Amid these developments, Lloyds, one of the major players in the automobile finance market, is facing significant financial risks. The bank has already set aside £450 million to cover the costs of an FCA investigation. Credit institutions may face a compensation program akin to the PPI refund, which could cost at least £16 billion, with some estimates going up to £40 billion. The crisis is already showing clear impacts on the UK stock market. The value of the significant vehicle financer Close Brothers has already dropped from £1.5 billion to just £325 million. The legal and financial landscape surrounding motor financing remains unstable, as many lenders are suspending their activities to assess the impact of the ruling.