Proactive Investors - Shares in Close Brothers Group plc (LON:CBRO) and Lloyds Banking Group PLC (LON:LLOY) tanked as a court of appeal ruled that motor dealers offering loans to customers for car purchases were liable to potential compensation for mis-selling.
In the ruling, motor dealers were said to have a fiduciary duty to customers, a decision that prompted Close Bros to say that it would stop new motor finance lending temporarily.
The specialist bank, which said it would appeal the decision, added new loans would be halted while it reviews and implements any relevant changes to documentation and processes to ensure compliance with these new requirements.
In a statement, the bank said although the case was initially determined in CBL's favour, this new appeal judgment sets a “higher bar for the disclosure of and consent to the existence, nature, and quantum of any commission paid than that required by current FCA rules, or regulatory requirements in force at the time of the case in question”.
While it added the financial impact of this (Hopcraft) case in isolation is not material, if it sets a precedent for similar claims it might result in ‘significant liabilities’ for the group though this is not yet possible to quantify.
The bank added it is in a strong financial position with a CET1 capital ratio of 12.8% as of 31 July 2024 and already has actions in progress further to strengthen its capital position.
Shares in Close Bros tumbled 19% to 295p while Lloyds, which has set aside more than £400 million for possible compensation, dropped 3.7% to 59.9p.