(Bloomberg) -- Shares of Close Brothers Group Plc plunged after it lost a court ruling over its disclosure obligations for customers taking out car loans, in a move the lender said could result in “significant liabilities” for its business.
Close Brothers has temporarily paused the writing of new UK motor finance business while it reviews its processes in light of the case, according to a statement. The company said Friday it intends to appeal the decision to the UK’s Supreme Court.
Investors have been closely following the so-called Hopcraft case, one of a number of court decisions that are set to feed into a broader regulatory probe of car finance. Analysts have said the potential compensation costs for the industry could be anywhere between £2 billion and £10 billion.
“The financial impact of the Hopcraft case in isolation is not material to the group,” Close Brothers said in a statement. Still, it warned “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.”
Shares of Close Brothers plunged as much as 22.9% and were trading 13.5% lower at 2 p.m. on Friday. The stock has slumped about 60% so far this year.
“The consumers were very poorly served by the brokers and the lenders alike,” the Court of Appeal judges wrote in their ruling.
South Africa-based FirstRand Ltd. said it was also seeking permission to appeal the judgment. It was involved in the case through its MotoNovo back book in the UK.
The company’s shares retreated as much as 3.2% in Johannesburg.
It comes days after Barclays Plc kicked off a separate London court challenge over its car loan practices. Barclays is appealing a ruling that it failed to treat a customer fairly when she bought a used car, arguing that the decision would serve as a template for how future complaints are handled ahead of a broader Financial Conduct Authority review.
The FCA has been reviewing historical commission for car loans since January and warned that Britain’s lenders needed to prepare for additional costs as part of a possible compensation program.
The watchdog banned so-called discretionary commission arrangements in 2021, saying the practice incentivized car dealers to increase a customer’s borrowing costs. Then in January, the regulator said it was aware that auto lenders were facing a deluge of complaints from consumers alleging their loans were priced in a way that treated them unfairly.
On Friday, the watchdog said it noted the court’s ruling in the Hopcraft case and that it is “carefully considering its decision.”
--With assistance from Jonathan Browning and Adelaide Changole.
(Updates to add FirstRand’s comments from the eight paragraph)
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