Well at last we have a government intervention.
A pity it couldn't have been sooner. |
summary from ft.com today:
- Chancellor Reeves seeks to shield car loan providers from multibillion pound payouts
-Government fears huge payouts will damage UK banking sector and stunt growth
- Compensation bill could reach £44bn, echoing payment protection insurance mis-selling scandal
Reeves fears that the case could cause chaos in the motor finance and car industry, making it harder for consumers to get loans. About 80 per cent of new vehicles in the UK are bought on finance.
If the Treasury is successful, it will deal a blow to consumer groups and claims management companies that have been encouraging car finance customers to file complaints to the Financial Ombudsman. |
News - www.msn.com/en-gb/money/other/uks-reeves-launches-bid-to-protect-car-loan-providers-in-mis-selling-case-ft-reports/ar-AA1xy3E1 |
What’s a hair shirt experience? |
Santanders were gonna pull out of the UK leak at the weekend got some thinking then 😂 |
Hopefully bk up to 5 or 6 quid :-0 |
Apparently article in the FT saying Reeves wanted the banks to avoid the full hair shirt experience on car loans |
What’s happened? |
The car side alone, if the figures are as others suggest, will be enough to finish off STB. |
pinkfish,
'However, all bets are off if it rolls over to all consumer credit and the implications are awful for the whole credit sector.'
The exact reason that parts of the legal action will be rolled back upon the supreme court appeal. |
Isn't STB probably toast then if those figures are close to correct and costs are as roughly estimated?
The 900K was estimated from the FCA info in November 2024, 1% of those was based on the STB being a very small player, hence 9K so far. There was a number bouncing around some time that STB peaked at 1% of the market as crowded out but the likes of Lloyds, Barclays, Close Brothers ++.
If your numbers are correct then STB may not survive the hit. Tragic. |
9k is almost certainly too low, unfortunately! I would note that the number of claims being pursued has likely accelerated since 2024Q1 (just look at the proliferation of CMCs advertising). I prefer looking at STB's new business lending volumes and backing out # of claims from that, but if you assume a 1% market share throughout the period, 50% claim rate, and 2m cars purchased on finance each year in the UK, that gets us to 10k claims a year. That would get you to similar figures to those I estimated below. |
Does 9K cases appear too low?
What cost on average per?
£1.8M for admin if that element comes in at about £200 per claim on 9K cases.
I find it hard to picture a £50M cost to STB for this.
However, all bets are off if it rolls over to all consumer credit and the implications are awful for the whole credit sector. Truly existential in that case. |
In total estimating something towards 820K complaints, say 900K by end of January 2025.
Somewhere, sorry I can't remember where, it was estimated Secure Trust were 1% of the market at their peak. If so that's 9K?? However, not sure if that is 1% by volume or 1% by finance value. Also, at peak, other times they were lower.
FCA - "In the period January to March 2024, the major banks and non-bank lenders representing 82% of the consumer motor finance market had received around 335,000 DCA complaints."
STB stopped in 2017 and........"We sometimes operated these arrangements until June 2017, ahead of the FCA banning their use in January 2021. We believe that the overall proportion of loans where we used discretionary commission arrangements was small and for a shorter period, relative to the industry in general."
FCA - "The FCA has estimated that there could be over 470,000 motor finance non-DCA commission complaints made by the end of January 2025."
470K + 335K + extras - approx 900K? |
 Hi both, @p1nkfish good point r.e. lending to cover the cost of car stock. I couldn't see any breakdown of lending volume in this regard, although this would lower damages. I just assumed all new lending volumes went to financing loans for consumers who are eligible to claim damage.
I obtained these figures purely by summing up new lending volumes in their motor finance division to date (although I had to guess new lending volumes in 2009). The 2.5% came from a SS report -- I cede that this could indeed be much higher, especially on lower value cars! Running the numbers through on my base case again (which assumes all commissions are fair game) with 5% commission yields £61.15m in damages.
Perhaps disclosing % of lending volume that financed consumer loans for these cars would be a good start. Maybe # of claims they have received to date. Unsure what value there would be in telling us the provisions they have set aside, however -- seems to be a shot in the dark for everyone at the moment. With repayment of TFSME as well, will definitely be a tough year. |
I have worked in the car finance industry for the last 30 years and have brokered deals on to Moneyway for the last decade or so. The lenders followed the FCA guidelines regarding commission disclosure which did not require consent for the exact level of commission. As a result, none of the lenders gained consent for the exact amount of commission, STB included, up until the recent ruling. |
b4, please point to where you found this information.
"STB had not sought consent for the exact commission amount up until the court ruling a month or so ago." |
Well UBS group seem to happy to take a stake! |
It is my understanding that in common with the industry as a whole, STB had not sought consent for the exact commission amount up until the court ruling a month or so ago. With that in mind it seems reasonable to include all deals written up to say October 2024. How did you arrive at the £2.11 billion in car finance lending since inception up to FY 2023? I think 2.5% of the loan amount is far too low, it is reasonable to at least double that and probably more I'm afraid. |
It's too complex without guidance from STB.
If the £1.04Bn is correct does it include lending to cover the cost of car stock, that is not consumer car finance lending and shouldn't be "fair game"?
As for the £2.11Bn, we don't know what the effect of changes made by STB in 2021 are.
"STB had ~ £1.04bn in motor finance new business lending between its creation in 2009 and FY2020, with this increasing to ~ £2.11bn if we measure up until FY2023."
In the absence of any clarity I would expect the market to assume the worst. |
In my head, I am trying to plan for the worst, which involves assuming that every commission is being looked at, irrespective of whether a DCA is used. However, once you consider such a scenario, it is not the settlement fee but rather the administrative costs that will be burdensome. This is a cost that STB is already incurring (and will largely have to incur irrespective of the Supreme Court's ruling).
STB had ~ £1.04bn in motor finance new business lending between its creation in 2009 and FY2020, with this increasing to ~ £2.11bn if we measure up until FY2023.
Assuming that 50% of those who took out deals claim, that 75% of the deals are found to be unfair, and that dealer commission was 2.5% of the loan amount, compensation for loans up until 2020 (including interest at 8% for 10 years) would be £17.56m.
If we assume that the average loan amount was £4k, the implied number of claims over the period would be ~130k, and with an estimated administrative cost of £200/claim, this would yield an administrative cost of £26.02m.
In other words, out of the estimated base cost of £43.58m, administrative costs account for ~60%. Assuming that loans up until FY2023 are also included, the total cost rises to £88.5m, with £52.84m being due to administrative costs. The implication here is that over 50% of the total cost to STB is fixed, and won't change based on the Supreme Court ruling.
The most sensitive input towards total cost calculation is the claim rate (the % of eligible claimants who initiate a claims process). Given ~£100m came off of STB's market cap due to the motor finance scandal, it looks like the the market is pricing in a scenario that leans towards my downside, which involves all motor finance loans ever issued being considered fair game. |
Where does personal responsibility and due diligence come into this? Nanny state just gets bigger by the day, it seems to be always somebody else’s fault. Ultimately consumers will pay, as will tax payers. |
Barclays appealing. Hard to see any bank being able to change the likely outcome unless shown to be very expensive to future customers or big negative economic impact. |
Seems to have found its floor ............ for now! |
hTTps://www.thisismoney.co.uk/money/markets/article-14182815/Close-Brothers-given-right-appeal-against-motor-finance-scandal-court-ruling.html |
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