Analysts warn of worst-case situations akin to the nation’s most expensive consumer banking disaster, which has left Britain’s auto finance sector in ruins.
A historic ruling by the U.K. Court of Appeal in late October declared that it was illegal for auto dealers to collect bonuses from banks that provide auto financing without obtaining the informed agreement of the consumer, which is the root cause of the developing issue.
A multi-billion pound redress system to repay consumers seems to have been made possible by the judgment, which took many in the auto loan business by surprise.
Many in the auto finance sector were taken aback by the ruling, which seems to have opened the door for a multibillion-pound consumer compensation plan.
It has drawn comparisons to the payment protection insurance (PPI) scam in Britain, which is thought to be the largest mis-selling disaster in the history of the nation’s financial sector and was believed to have cost banks over £50 billion ($63.8 billion).
The nation’s financial watchdog, Britain’s Financial Conduct Authority, announced on Wednesday that it will write to the Supreme Court to request a speedy decision on whether to allow lenders to appeal the decision.
Benjamin Toms, U.K. banks analyst at RBC Capital Markets, said that if the Supreme Court upholds the lower courts verdict, the downside impact for the motor finance sector, which includes both banks and non-banks, could be as much as £28 billion.
“Some lenders are likely to pull out of the market, which will mean less choice and higher prices for those looking to buy a vehicle,” Toms said.
“There is also the potential for legal creep, with other types of lending like premium finance also coming under the spotlight,” he added.