Finance

UK car finance industry in crisis, with banks bracing for mega payouts

Published

5 months ago

November 14, 2024

View looking towards the Royal Exchange and in the City of London where the glass architecture of the tower 22 Bishopsgate disappears into mist on 6th November 2024 in London, United Kingdom.

Mike Kemp | In Pictures | Getty Images

Britain’s motor finance industry is in disarray, with analysts warning of worst-case scenarios similar in magnitude to the country’s costliest consumer banking scandal.

The burgeoning crisis stems back to a landmark judgement from the U.K.’s Court of Appeal in late October, when the court ruled it was unlawful for car dealers to receive bonuses from banks providing motor finance — without getting the customer’s informed consent.

The decision caught many in the motor finance industry off guard and appears to have paved the way for a multi-billion-pound redress scheme to compensate consumers.

It has prompted comparisons to Britain’s payment protection insurance (PPI) scandal, which was estimated to have cost banks more than £50 billion ($63.8 billion) and is regarded as the biggest mis-selling scandal in the country’s financial services history.

Britain’s Financial Conduct Authority, the country’s financial watchdog, said on Wednesday that it will write to the Supreme Court to expedite a decision over whether to give lenders the green light to appeal the ruling.

Banks left ‘in limbo’

The FCA, which noted that car financing groups were likely to have received a surge in complaints in recent weeks, said that it would consider intervening “to share its expertise” if permission to appeal is granted.

It urged motor finance groups to consider setting aside financial provisions to resolve the high volume of complaints.

Niklas Kammer, equity analyst at Morningstar, said Britain’s banks have been left in “in limbo” since the Oct. 25 court ruling, with Lloyds thought to be the most at risk through its Black Horse business. Barclays also has some exposure, Kammer said, “but meaningfully less.”

A Lloyds Banking Group Plc bank branch in London, UK, on Monday, Oct. 21, 2024.

Bloomberg | Bloomberg | Getty Images

“I think it is fair to say that the ruling by the Court of Appeal came as a surprise to the banks as well as the FCA. According to the banks, they followed the rules and guidelines set by the FCA, which are not aligned with the new Court of Appeal ruling,” Kammer told CNBC via email.

“As such, there exists significant uncertainty which set of rules banks have to abide by. The FCA has said that it will await the outcome of a potential Supreme Court ruling before taking a decision on the matter,” Kammer said.

“If the ruling stands, the FCA will have to change its rules on disclosures. Initially, the FCA pointed out that the matter should not take similar proportions to the PPI mis-selling, but should the new ruling stand, worst case scenarios do come close to the same magnitude in impact.”

Lenders ‘likely to pull out of the market’

Benjamin Toms, U.K. banks analyst at RBC Capital Markets, said that if the Supreme Court upholds the lower courts verdict, the downside impact for the motor finance sector, which includes both banks and non-banks, could be as much as £28 billion.

“Some lenders are likely to pull out of the market, which will mean less choice and higher prices for those looking to buy a vehicle,” Toms said.

“There is also the potential for legal creep, with other types of lending like premium finance also coming under the spotlight,” he added.

London Taxis wait in a queue at a taxi rank outside Fenchurch Street Station on October 14, 2024 in London, United Kingdom.

John Keeble | Getty Images News | Getty Images

In January, the FCA launched a review into the motor finance industry to probe whether there was widespread misconduct related to discretionary commission arrangements, or DCAs, before they were banned in 2021.

It said on Wednesday that it is currently considering the impact of the Court of Appeal’s judgement on its review.

Fitch, an influential rating agency, warned earlier this month that it had placed the ratings of Close Brothers Group on “Rating Watch Negative” due to the lender’s “high exposure” to motor finance.

Other lenders that have been “significantly involved” in motor finance lending include Barclays, Investec, Lloyds and Santander UK, Fitch said.

Lloyds, Britain’s largest car finance business, has set aside £450 million in financial provisions.

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Digital bank Bunq accelerates US expansion effort as profit jumps

Published

8 hours ago

April 15, 2025

Business Finance News

Dutch digital bank Bunq is plotting re-entry into the U.K. to tap into a “large and underserved” market of some 2.8 million British “digital nomads.”

Pavlo Gonchar | Sopa Images | Lightrocket | Getty Images

Dutch digital bank Bunq on Tuesday said it’s filed for broker-dealer registration in the U.S. as it looks to further expand across the Atlantic.

Bunq CEO Ali Niknam said the broker-dealer application will be an initial step toward securing a full banking license. He couldn’t offer a firm timeline for when Bunq will secure this authorization in the U.S. — but said he’s excited for its growth prospects in the country.

Obtaining a broker-dealer license will mean Bunq “can offer our users who have an international footprint — which is the user demography we’re aiming for — a great number of our services,” Niknam told CNBC. Bunq mainly caters for “digital nomads,” individuals who can live and work from anywhere remotely.

Bunq will be able to offer most of its services in the U.S. with the exception of a savings account after securing broker-dealer authorization, Niknam added.

Bunq, which touts itself as a bank for “digital nomads,” currently has a banking license in the European Union. It has applied for an Electronic Money Institution (EMI) in the U.K. Bunq previously had operations in Britain but forced to withdraw from the country in 2020 due to Brexit.

Bunq initially filed for a U.S. Federal bank charter in April 2023. However, it withdrew the application a year later, citing issues between its Dutch regulator and U.S. agencies. The company plans to resubmit its application for a full U.S. banking license later this year.

65% jump in profit

Beyond the update on international expansion, Bunq also on Tuesday reported a 65% year-over-year jump in profit to 85.3 million euros ($97.2 million). That jump was primarily driven by a 55% increase in net interest income, while net fee income also grew 35%.

Similarly to fintech peers such as N26 and Monzo, Bunq has benefited from a high interest rate environment by pocketing yields on customer deposits sat at the central bank.

Bunq’s CEO told CNBC that, while high interest rates have certainly helped, more generally Bunq is seeing increased usage of the platform and has been focused on cost efficiency from an operational perspective.

“Because we are so lean and mean, and because we have set up all of our systems from scratch … we have been able to not only increase our profits, but also offer very good interest rates in the European market in general, and in the Netherlands specifically,” Niknam said.

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More recently, central banks in the EU and U.K. and U.S. have moved to slash interest rates in response to falling inflation and concerns of an economic slowdown, which can bite into bank earnings.

Niknam said he’s not concerned by the prospect of rates coming down and expects potential declines in interest income to be offset by a “diversified” revenue mix that includes income from paid subscription products, as well as new features. Bunq recently launched a tool that lets users trade stocks.

“This is different in continental Europe to the U.K. We had negative interest rates for long,” Niknam told CNBC. “So as we were growing, actually our cost base was also growing because we had to pay for all the deposits that people deposited a Bunq so I think we’re in a great position in 2025

Bunq is coming up against heaps of competition, especially in the U.S. market. America is already served by established consumer banking giants, including JPMorgan Chase, Bank of America, Wells Fargo and Citigroup. It’s also home to several major fintech brands, such as Chime and Robinhood.