Close Brothers and Lloyds slump after court ruling
- The Court of Appeal ruled that car dealerships owe a fiduciary duty to consumers, impacting how commissions on loans are handled.
- This ruling caused stock prices of major lenders, such as Close Brothers and Lloyds Banking Group, to drop sharply.
- The decision might lead to an estimated £16 billion in compensation claims against lenders, indicating a problematic future for the car finance sector.
In October 2024, the UK faced significant turmoil in its car finance sector following a critical ruling by the Court of Appeal. This decision determined that dealerships have a fiduciary duty to their customers when it comes to loan agreements. Consequently, the court mandated that dealers cannot earn commissions from lenders without first obtaining the customer's informed consent. The implications of this ruling could lead to a wave of compensation claims against major lenders in the sector, such as Close Brothers and Lloyds Banking Group, causing their shares to plummet. Close Brothers' stock fell 24.5% to 276.6p, while Lloyds dipped 7.3% to 57.66p. With investigations ongoing by the Financial Conduct Authority into alleged unfair commission practices, analysts warned that the total compensation owed to consumers could reach £16 billion, marking a tumultuous period for the industry. The broader market was also impacted, as reflected in the declines of FTSE indices, indicating a challenging economic landscape for investors as the nation anticipates a potentially grim budget.