Compensation payments over mis-sold car finance could hit lenders for as much as £30billion, a top credit agency has warned.
The Moody's figure is the highest prediction so far in the scandal, which has drawn comparisons to the PPI debacle which left firms reeling with a bill of around £50billion.
The Times reports bigger banks such as Lloyds, Barclays and Santander will likely absorb the impact, while Moody's suggests smaller firms will face a "more significant hit to earnings and capitalisation".
The car finance industry has been on high alert since the Financial Conduct Authority banned discretionary commissions in car loan deals in early 2021.
The industry regulator was concerned that this type of commission, paid by lenders to car dealers or credit brokers for arranging finance, raised red flags as it provided an incentive for borrowers to be charged higher interest rates.
The number of complaints from consumers about such payments has soared of late, triggering the regulator launch a review of discretionary commissions as far back as April 2007.
Rocking the industry, the ongoing review has sparked fears car loan providers will be forced to pay compensation to borrowers.
Now Moody's has cautioned the compensation bill facing lenders could fall between £8billion and £21billion, with the potential for an additional £9billion if a Court of Appeal judgement last month, broadening the range of commission types involved, is upheld.
FTSE 100
The UK's flagship share index, the FTSE 100, was down 17 points at 8,100 shortly after opening this morning.
Brent crude oil futures were down 0.16%, trading at $73.47 a barrel.
Companies reporting today
British Land* | Half Year Results |
Coats Group | Trading Statement |
HICL Infrastructure | Half Year Results |
Molten Ventures | Half Year Results |
Ninety One | Half Year Results |
Rotork | Q3 Trading Statement |
Sage Group | Full Year Results |
Severn Trent | Half Year Results |
Softcat | Q1 Trading Statement |
TwentyFour Income Fund | Half Year Results |