Lenders face £30bn compensation bill to resolve motor finance scandal

Lenders could be hit by a £30bn bill to cover compensation costs linked to the motor finance scandal, ratings agency Moody’s has said.

A court ruling recently determined that banks must fully inform customers about the existence and amount of commissions when selling auto loans.

The magnitude of the potential payout would make mis-selling in car finance the most expensive consumer banking scandal in Britain since the PPI of the 2000s, which cost banks £50 billion.

A review of the scandal by the City regulator could ultimately result in remediation costs of between £8 billion and £21 billion, Moody’s said.

And the recent court ruling could add £9bn to the bill, the ratings agency said, taking the total to £30bn in its “worst-case” model.

This is a sharp increase on an earlier estimate by analysts, which put the total potential cost to the industry at £16bn.

The Court of Appeal ruling published in October has shaken the industry.

Car finance accounts for around a fifth of loans made by lender Close Brothers.

Shares have fallen 45 percent since the ruling. He plans to file an appeal against the sentence.

Lloyds, owner of car finance provider Black Horse, has set aside £450m to cover the potential cost of an investigation into car finance deals.

Santander has delayed its results due to uncertainty over the court verdict.