Close Brothers tumbles after Court of Appeal ruling
By Michele Maatouk
Date: Friday 25 Oct 2024
(Sharecast News) - Close Brothers tumbled on Friday after the Court of Appeal ruled in favour of British consumers that motor dealers acting as credit brokers owe a fiduciary duty to their customers.
Close Brothers said in a statement that it plans to appeal the decision and that it will be temporarily pausing the writing of new UK motor finance business "while we review and implement any relevant changes to our documentation and processes to ensure compliance with these new requirements".
Ay 1340 BST, Close Brothers shares were down 15% at 310p. Lloyds Banking Group - which also provides motor finance - was 4.3% lower at 59.50p.
There were three complainants involved in the case: Amy Hopcraft, Marcus Johnson and Andrew Wrench. They argued that the car dealers owed a duty to be impartial in the information they provide.
Hopcraft's case was against Close Brothers, while Johnson's was against Firstrand Bank and Motonovo Finance. Wrench's case was against Firstrand.
The Court of Appeal said: "The dealers were the sellers of the cars, but they were also acting as credit brokers on behalf of the claimants. In the latter role, their task was to search for and offer the customer a finance deal from their panel of lenders which was suitable for their needs and competitive.
"In some cases they undertook to find the best deal or the one which was most suitable for the customer."
Close Brothers said it "disagrees with the Court's extension of the existing case law in this area and intends to appeal this decision to the UK Supreme Court".
It said the financial impact of the Hopcraft case in isolation was not material to the group.
"However, subject to the appeal to the UK Supreme Court, the judgment may set a precedent for similar claims, which may (depending on the specific facts of those cases) result in significant liabilities for the group."
It said the range of outcomes was uncertain and the overall potential cost to the company will depend on, among other things, the application of the Court's ruling, the number of claims received, the facts and circumstances of each individual claim, and the level of compensation, if any, granted by the Court in each case.
"It is therefore currently not possible to assess the timing, scope or quantum of any potential financial impact on the group," it said.
"While the judgment is likely to extend the current period of uncertainty for the group, we will continue to focus on supporting our customers and protecting our valuable business franchise. The group is in a strong financial position, with a CET1 capital ratio of 12.8% as at 31 July 2024."
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