Latest news with #motorfinance
Irish Times
5 days ago
- Business
- Irish Times
Bank of Ireland seen having clarity on UK motor finance scandal costs this year
The UK's financial watchdog said on Thursday it plans to decide on whether to launch a compensation scheme for mis-sold car loans within six weeks of an imminent court ruling. This would likely bring clarity for Bank of Ireland , which has a 2 per cent share of the UK motor finance market, on the ultimate cost of an industry-wide saga. The Dublin-based group set aside a provision of £143 million (€172 million) last year for a potential compensation scheme, though many analysts say the bill could rise. Analysts say the episode could be the costliest for the UK banking sector since they paid almost £40 billion in redress in the 2010s for mis-selling payment protection insurance. The Financial Conduct Authority (FCA) is awaiting a UK supreme court ruling, likely to come in July, on whether to uphold a lower court verdict that several car finance schemes were unlawful, which could require a compensation scheme for millions of customers. READ MORE [ Can Bank of Ireland draw a line under UK car finance saga with €172m provision? Opens in new window ] 'We'll confirm within six weeks of the supreme court judgment whether we're proposing to introduce a redress scheme,' the FCA said in a statement on Thursday morning, adding that it plans to have shorter than normal consultation engagement thereafter, possibly as tight as six weeks. The regulator noted that it has already been speaking to consumer groups, lenders and industry trade bodies 'to get their views on important issues to consider if we do introduce a redress scheme'. The FCA said it aimed to make any redress scheme easy to understand so that affected consumers can take part in it without using claims management companies that take a chunk of compensation in fees in return for helping with a claim. Claims management companies chased business during the payment protection insurance scandal. The FCA set up a review early last year into whether motor finance customers were being overcharged because of historical use of discretionary commission arrangements (DCAs) between car dealers and lenders. The examination covers 14 years before such arrangements were banned in 2021 in the market. DCAs involved lenders setting a minimum rate for car finance but giving brokers, typically forecourt salespeople, the discretion to set higher rates. Commission paid by the lender was linked to rates charged – meaning the higher the rate the car buyer pays, the more the broker gets. The FCA has argued, however, that the London court of appeal went too far on a number of test cases, when it decided in October 2024 that motor brokers owed a fiduciary duty to customers. The regulator is seeking to balance consumers' ability to get a fair deal with making sure the motor finance market functions well. 'More than two million used and new vehicles are bought using motor finance each year. We want to make sure the motor finance market functions well, with effective competition, so consumers can get a fair deal,' it said on Thursday. Banks have argued a too-punitive scheme could harm a market that customers rely on to buy cars, and damage the UK's reputation as a hub for financial services. Goodbody Stockbrokers analyst Denis McGoldrick estimates that Bank of Ireland faces having to set aside a total of €270 million to cover potential dress – some 57 per more than it has provided for to date. Elsewhere, RBC Capital markets estimates that the final cost to the bank could be €700 million. Lloyds Banking Group is the biggest player in the industry. UK-based Close Brothers and South Africa's FirstRand are also significant participants and are behind the supreme court appeal.
Daily Mail
6 days ago
- Automotive
- Daily Mail
Car finance claims dubbed the new PPI must not break the market, warns FCA
Britain's financial regulator has warned that any compensation paid out in the wake of motor finance commissions scandal can not be allowed to result in corporate bankruptcies. It comes ahead of closely watched Supreme Court decision on discretionary commission payments due next month that could see lenders shouldering a collective bill of £44billion. The court will decide whether to uphold a previous ruling that several such payments were unlawful, which could lead to consumer redress at the scale of the notorious PPI scandal. Announcing a consultation on potential redress, the Financial Conduct Authority said on Thursday that any compensation plan must 'ensure the integrity of the motor finance market, so it works well for future consumers'. The car finance sector is concerend it might be left with a massive bill for individuals who bought vehicles using loans that involved a discretionary commission arrangement (DCA) before January 2021. Barclays has set aside £90million in potential redress payments, while Santander has reserved £295million, and Lloyds Banking Group a whopping £1.2billion. Ratings agency Moody's has predicted that the industry might fork out £30billion, while the FCA has warned it could total £44billion. 'We've seen a range of redress rates suggested,' said the FCA. 'This includes some highly speculative figures by some CMCs (claims management companies) and law firms.' It added: 'If many firms were to go out of business or withdraw from the market, this could reduce competition and could make it more expensive for consumers to borrow money to buy a car in the future. 'Where firms fail, customers may not get any redress, as motor finance isn't covered by the Financial Services Compensation Scheme.' DCAs allowed car dealerships and brokers to determine the interest rate on a vehicle buyer's finance deal, which incentivised them to charge more expensive loans. High volumes of motor finance customers have since complained they did not receive sufficient information on DCAs before they were banned. A landmark Court of Appeal ruling last October declared it was unlawful for lenders to give car sellers commissions without a customer's informed consent. The Supreme Court heard an appeal against this court decision in early April and is set to deliver a final judgement on the matter sometime during the summer. Within six weeks of a verdict, the FCA will confirm whether to introduce a consumer redress scheme, as well as the timings for issuing a consultation on how such a plan would work. Among the concerns would be whether to have an opt-in scheme, where customers must actively confirm to their firm that they want to be included, or an opt-out scheme, with consumers automatically included unless they intentionally withdraw. Darren Richards, head of Broadstone's insurance, regulatory and risk advisory division, said: 'It is clear that the decisions behind the design of a redress scheme are complex and need to balance fairness for consumers and the integrity of the motor finance market.'
Yahoo
25-05-2025
- Business
- Yahoo
£10,000 in Lloyds shares could earn this much in cash
Lloyds Banking Group (LSE: LLOY) shares have climbed more than 40% so far in 2025, and they're up 180% in the past five years. That'll please a lot of shareholders, but there's a downside. Investors looking for dividend income today would have to settle for a yield of 4.1%. It's been higher in the recent past, which is one of the good things about a fallen share price. If dividends are maintained, the percentage return every year from an investment that's seeing its price falling can be significantly higher. Now, that's quite a big 'if'. Share prices often fall because a company faces difficulties. And a brief high dividend yield isn't so good if the company has to cut it. Thankfully that didn't happen with Lloyds. There was definitely a risk buying while the shares were down and the yield was up. But I don't think it was too big a risk as I didn't see much wrong with the business itself. So it's too late to lock in the 6% or 7% we could have had not too long ago. But I don't see that as any reason to turn our noses up at the 4.1% currently forecast. And looking further forward, analysts expect it to get back up as high as 6% by 2027 based on today's Lloyds share price. The main danger I see now, however, is the Supreme Court's investigation into motor finance mis-selling. That could cost Lloyds dearly and might even hit the dividend. But I still think long-term dividend potential makes it one to consider. Anyway, what might a £10,000 investment in Lloyds shares at today's 4.1% dividend earn us? It seems straightforward enough, with 4.1% of £10,000 working out at £410. So that would be £410 a year in our pockets, equivalent to £4,100 every 10 years. Except, by 2027 we could be looking ar £600 per year. And who knows how much further it might go in the years after that. If the share price rises though, that would knock the percentage yield back down again as it's done in the past few years. That wouldn't apply to an investment made today, mind. The headline yield might drop compared to future higher share prices. But if the forecasts come good, the return we'd actually receive would be based on the price we pay today to buy the shares. And just counting the cash misses out on the best part of it all. How far can we boost our returns if we use the annual dividend cash to buy more? My calculations suggest we'd make a total of approximately £4,950 over the next 10 years. That might not be a huge amount more than the £4,100 from just the straight dividend cash. But what about 20 years? Reinvesting the same dividend for 20 years could push our profit up to £12,340. Pocketing the cash and not reinvesting it would make us just £8,200. It clearly pays to reinvest our dividend cash and let the magic of compounding pile up our profits for as long as we can. But don't forget to diversify to help mitigare the risk of individual companies. I think Lloyds is one to consider. The post £10,000 in Lloyds shares could earn this much in cash appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool Alan Oscroft has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Motley Fool UK 2025
