Breakingviews - UK banks' motor-finance win yields two dividends
Britain's car finance saga has echoes of the payment protection insurance scandal, in which lenders had to compensate customers for mis-sold insurance they hadn't needed or wanted. That gobbled up over 40 billion pounds in redress payments, which were a drag on bank earnings for years.
The latest scandal involves loans packaged up by car dealers, who pocketed commission from lenders and in some cases were incentivised to lumber customers with unnecessarily expensive credit. A UK Court of Appeal ruling in October raised the risk that any loan with an undisclosed commission might be deemed unfair. That could have led to massive PPI-style payouts: RBC analysts pencilled in a severe worst-case scenario of 29 billion pounds across both banks and motor finance groups. Lloyds, with a 14% market share, was the most exposed of the UK high street banks. Since October, its stock has mostly traded at a discount to peer NatWest (NWG.L), opens new tab.
On Friday, however, Britain's Supreme Court threw out two of the three key cases. It also set a higher bar for redress. As a result, banks and finance companies are likely to only offer compensation in situations where commissions were hidden and substantial, or where rates were unnecessarily jacked up.
This is still a big deal - the UK Financial Conduct Authority reckons the total redress to be between 9 billion pounds and 18 billion pounds, and RBC estimates Lloyds may be on the hook for perhaps 1.6 billion pounds. Yet much of that can be covered by existing provisions, currently around 1.2 billion pounds. The 3 billion pound-plus jump in Lloyds' market capitalisation on Monday implies investors were fretting over a higher payout and possibly attaching a higher risk premium to owning the UK bank's shares.
The real boon for UK banks, however, is that Rachel Reeves no longer has to activate a harebrained plan, opens new tab to overrule the Supreme Court. The UK finance minister could have argued she had to protect the car finance sector, which in 2023 accounted for nearly four-fifths of private vehicle registrations. But publicly protecting banks while subjecting Britons to austerity would have been a bad look.
Ultimately, that might have rebounded on the banks themselves. While citizens' post-2008 anger at the sector following a 137 billion pound bailout, opens new tab has subsided, populist politicians could have whipped it back up. For bank bosses, avoiding the brickbats and levies from being back in the firing line is probably even more valuable.
Follow @Unmack1, opens new tab on X
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Times
7 minutes ago
- Times
Symbolic gestures won't prevent illegal working
T he Home Office's latest move to crack down on illegal working in the gig economy feels more like political theatre than a serious solution. Announcing a plan to share data with food delivery businesses such as Deliveroo, Just Eat, and Uber Eats, specifically around asylum hotel locations, sounds bold on paper. But in reality, it is unlikely to achieve much. The government wants these companies to flag and cancel accounts repeatedly active in 'high-risk' areas. But this relies on the flawed assumption that such monitoring will deter or even detect illegal workers. It won't. The simple fact is that account sharing is incredibly easy to get around. More information will be shared with food delivery companies such as Just Eat, Uber Eats and Deliveroo ALAMY And the reality is that these companies do not have a genuine incentive to stop it. Unlike traditional employers, they are not subject to a penalty of up to £60,000 per illegal worker. So why would they invest in better checks or policing their own systems? The simple fact is that gig economy companies do not know who is using their apps, and who is engaging with their customers under their brand name, making illegal work easy, effortless and undetectable. If ministers were serious about tackling this issue, they would demand more — facial recognition or real-time identity verification every time a job is accepted could make a real difference. Illegal workers simply would not be able to operate. But until that's mandated, and until companies face real consequences, nothing will change. Worryingly, the issue does not end with gig economy firms. There is a troubling lack of understanding among traditional employers about their own compliance risks. Since 2022, businesses have been allowed to use digital verification services for right to work checks on British and Irish nationals. But many are using the same checks for foreign workers without realising that doing so leaves them legally exposed. Employers are surprised to learn that they are not establishing the all-important statutory excuse for their foreign workers. Large organisations — including NHS trusts, local authorities, universities and household organisations — are unknowingly putting themselves at risk. They believe using digital verification is enough — but it does not give them the legal protection they think it does. When foreign workers lose their right to work, or even exceed their permitted hours, employers are shocked to be slapped with penalties from the Home Office. Both the gig economy and traditional employment are riddled with loopholes. And while the government focuses on symbolic gestures such as data sharing, illegal work will continue, unchecked and undetected. If this crackdown is to mean anything, there needs to be more enforcement, starting with the government holding the platforms and third-party providers accountable. Emma Brooksbank is a partner at the law firm Freeths
Times
7 minutes ago
- Times
Eugene Shvidler case highlights threat to fundamental liberties
E ugene Shvidler left the Soviet Union in 1989 and obtained refugee status in the US before being granted a UK visa under the highly skilled migrant programme. A British citizen since 2010, Shvidler and his family chose to build their lives in England. He has not set foot in Russia since 2007, holds no ties to its regime, and has never been a citizen of the Russian Federation. Indeed, in 2022, he publicly condemned the 'senseless violence' in Ukraine. Nevertheless, that year the British government took the draconian step of freezing Shvidler's assets on the basis that he was 'associated with' Roman Abramovich, the former owner of Chelsea FC; and that he was a non-executive director of Evraz, a mining company carrying on business in a sector of strategic significance to Russia. Critically, because Shvidler is a British citizen, the asset-freeze makes it a criminal offence for him to deal with his assets anywhere in the world — subject to certain limited exceptions. Roman Abramovich, left, with Eugene Shvidler, centre ALAMY Ironically, had Shvidler not become a British citizen, the asset-freeze would be limited to his assets in the UK — he would have been better off. Instead, he cannot even buy food without obtaining a licence to do so. This is in circumstances where he has done nothing unlawful. It is unquestionable that the asset-freeze interferes with Shvidler's ability to have peaceful enjoyment of his possessions, a right guaranteed by the European Convention on Human Rights. The question is whether such interference is justified in the public interest. Having failed to persuade the government and the lower courts that the answer to that question was a resounding 'no', Shvidler appealed to the Supreme Court to uphold his rights. Sadly, they did not do so — the majority decision of four to one deferred to the government on the basis that the executive branch has a 'wide margin of appreciation' when imposing sanctions for the pursuit of foreign policy objectives. Lord Leggatt did not defer. In a dissenting judgment that will roar through the ages, he championed the constitutional role that our courts should play in keeping checks and balances on the executive powers exercised by the government. Without that separation of powers, our fundamental liberties are under threat. Citing Magna Carta and Orwell, Lord Leggatt stood up for those liberties and declared unlawful the asset-freeze 'without any geographical or temporal limit' which has deprived Shvidler of the basic freedom to use his possessions as he wishes, a freedom to which he should be entitled as a citizen of this country. In 1989, Shvidler left a country in which — in his words — 'individuals could be stripped of their rights with little or no protections'. He has since left the UK for the same reason. James Clark is a partner at the firm Quillon Law; Jordan Hill, an associate at the firm, also contributed to this article
Reuters
9 minutes ago
- Reuters
Singapore's bank DBS second-quarter net profit rises 1%, beats forecast
SINGAPORE, Aug 7 (Reuters) - DBS Group ( opens new tab, Singapore's biggest bank, on Thursday posted a 1% rise in net profit in the second quarter from a year earlier on the back of higher total income. DBS, which is also Southeast Asia's biggest lender by assets, said April-June net profit climbed to S$2.82 billion ($2.19 billion) from S$2.79 billion a year earlier. This beat the mean estimate of S$2.77 billion from three analysts, according to LSEG data. ($1 = 1.2848 Singapore dollars)
