Shares in Britain’s biggest car loan providers rallied yesterday after they were handed a lower-than- feared compensation bill for the motor finance scandal.
FTSE 250 lender Close Brothers closed up 5.4 per cent while Lloyds Banking Group gained 3.7 per cent and Barclays rose 1.1 per cent.
The rally came after the Financial Conduct Authority (FCA) handed the industry a bill of £11billion for unfairly selling 14.2million car loans, having previously estimated somewhere between £9billion and £18billion.
Jonathan Pierce, an analyst at Jefferies, said the industry has ‘landed in a much better place than many feared’.
Motorists affected are in line for compensation worth an average of £700 under the ruling by the City watchdog.
The FCA said lenders broke the law when consumers were not told key information such as chunky commissions being paid to car dealers who sold them loans.
Reprieve: The FCA handed the motor finance industry a bill of £11bn for unfairly selling 14.2m car loans, having previously estimated somewhere between £9bn and £18bn
The industry faces making between £8.2billion and £9.7billion in payouts.
When the cost of running the scheme is included, the bill hits £11billion, with payouts from £500 to more than £2,300 in the worst cases.
It is one of the most expensive scandals to hit the financial sector, though the bill is well below the £50billion banks faced for mis-selling of payment protection insurance.
Lloyds has set aside £1.2billion to cover potential costs and compensation while Barclays has put aside £80million and Close Brothers £165million.
Santander has said it was setting aside £295million.
Gary Greenwood, an equity analyst for Shore Capital, estimated the industry had made around £2billion of total provisions ‘suggesting significant further provisions may be required’.
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