Premium Finance companies’ optimism grows in avoiding a potential £1billion+ compensation risk as UK Treasury seeks to intervene in Supreme Court Appeal.

The Financial Times recently reported that the UK Treasury was seeking to intervene in the motor finance commission disclosure case due to be held by the Supreme Court in April. Rachel Reeves intervenes in UK car finance mis-selling case to protect lenders

A successful appeal would represent a major win for UK motor lenders and a disappointing outcome for consumer groups. Close Brothers plc shares have strengthened by around 60% recently, so someone somewhere is confident of success.

The case is being closely watched in the insurance industry where several respected commentators have highlighted the potential for a direct read across. This is due to the many parallels between the historic practices in motor lending and insurance premium finance.

One estimate of potential compensation levels was well in excess of a £1 billion across the market based on the levels of discretionary commission paid across 10 years, one of the time periods suggested in the motor finance case. Even a shorter 3-4 year revie would be extremely significant for a market where we estimate the major providers have a combined PBT of around £125m or less.

If the Treasury intervention is successful, it will be good news in insurance where premium finance company failures would not be in the interest of customers, brokers or market liquidity.

Would a successful appeal mean back to business as usual?

Unlikely.

Whilst a successful appeal may de-risk historic claims, future commission disclosure requirements are almost certain to be strengthened. Arguments that “we were only adhering to requirements set out by the FCA” or “the only relevant case law is the Consumer Credit Act” are interesting but in our view unlikely to be sustainable.

Pressure from regulators, industry commentators, consumer champions and others are likely to mean that commission disclosure in one form or another looks likely to stay. It will be for brokers to decide whether they take their direction from their lender.

On these or other premium finance matters, tifco provides independent subject matter expertise. To find out more, contact us at [email protected]

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