"We just believe the market needs clarity"

Lloyds Banking Group chief executive Charlie Nunn (pictured) has expressed support for the UK government’s decision to intervene in a significant car finance mis-selling case, which has affected UK lenders with the threat of massive compensation claims and regulatory uncertainty.
“We definitely welcome the intervention,” said Nunn, speaking to The Times during the World Economic Forum in Davos. “We just believe the market needs clarity.
“Eighty percent of people need finance to buy a new car, and a large number of second-hand car buyers do as well. We need a well-functioning motor finance industry that supports consumers.”
Chancellor Rachel Reeves has earlier sought permission for the Treasury to intervene in an upcoming Supreme Court appeal, warning that billions in compensation payouts could harm the nation’s business climate and destabilise the motor finance industry.
Lloyds, the UK’s largest motor finance provider, has already allocated £450 million to cover potential compensation costs for car loan customers. However, analysts have suggested this provision may need to increase. The controversy has weighed on the bank’s share price since the Financial Conduct Authority (FCA) began an inquiry into parts of the car finance market a year ago.
The case gained wider attention in October after a Court of Appeal ruling applied to the entire motor finance industry. The ruling, which industry insiders claim could reshape the sector, is now being challenged in the Supreme Court, with hearings set for April.
The Treasury is stepping in to ensure any compensation is “proportionate” and to safeguard the broader regulatory framework. Nunn admitted that the Court of Appeal’s decision has caused concern among shareholders.
“We’ve had lots of our investors asking how the regulatory regime can be overwritten retrospectively, by the Court of Appeal so easily,” Nunn was quoted as saying in The Times report.
Credit rating agency Moody’s estimates potential compensation costs for the motor finance industry could reach £30 billion, while HSBC analysts predict the figure might climb as high as £44 billion. If realised, these sums would rival the £50 billion costs of the payment protection insurance (PPI) scandal.
The FCA has come under scrutiny for its handling of the issue, with some industry figures privately criticising the retrospective nature of the inquiry. The regulator’s investigation is focused on discretionary commissions paid by motor finance lenders to car dealers, dating back as far as 2007. While such commission arrangements were banned in early 2021, the FCA’s actions have drawn complaints that its broad approach risks destabilising the industry.
The government has already urged regulators to ease rules to support economic growth, arguing that overly cautious regulatory measures could hinder the UK’s financial sector.
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