Explainer-Is Britain on the cusp of another multibillion-pound consumer finance scandal?

By Sinead Cruise

LONDON (Reuters) – The UK Supreme Court will hear on Tuesday an argument to cancel a ruling that might cost billions of financial industry in the financial industry in Britain at new legal costs and possible customer compensation.

In October, the Court of Appeal ruled that it was illegal for lenders to pay commissions to car dealers without the approval of the client, which led to speculation about the nature and size of the potential treatments for the affected borrowers.

Lloyds Banking Group, Close Brothers and Santander UK together allocated more than 1.5 billion pounds ($ 1.9 billion) to cover potential compensation claims.

Some analysts say that the repercussions can be the most expensive for banks because they paid approximately 40 billion pounds as compensation to customers for the poor sale of insurance to protect the payment.

What will the Supreme Court look?

Reviewing three previous claims – two against the South African lender and one against Britain’s close brothers – The Supreme Court will decide the legal responsibility of car dealers in providing appropriate information to consumers when working as credit mediums.

Assuming that the duty of sponsorship is due, the court is also expected to rule whether the commissions paid by the lenders of the fields of cars are “secret” or not discovered adequately, and whether lenders are responsible as accessories to purchase the credit brokers of the duty.

If the lenders are considered officials, and the relationship between the lender and the consumer is considered “unfair” under the 1974 Credit Credit law, the court will decide any kind of wrong lenders who have to do.

The Supreme Court ruling is expected in the summer.

Who may be affected?

The Financial Conduct Authority banned the payment of estimated cars financing committees in 2021, canceling the incentives for brokers to raise the interest rate that customers pay on their auto financing loans.

But some clients say they were treated unfairly before the embargo came into effect, which prompted FCA to launch a probe in January 2024 in a possible historical misconduct.

If the lenders and brokers in the Supreme Court are supposed to be more transparent about the committees, the organizer said it will consult about the structure of the compensation system within six weeks.

FCA data shows that more than two million people annually depend on the car financing market to buy a car.

How many banks can pay?

A handful of lenders in the UK only have large car financing companies enough to be financially interested in the ruling.