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Lloyds Banking Group is gearing up for a lawsuit from more than 30,000 consumers who claim to have been mis-sold car loans, in a sign that they believe that the regulator’s long-awaited redress scheme will favour large banks.
Courmacs Legal, the law firm, is set to file a lawsuit against the bank’s Black Horse unit on behalf of customers seeking damages for historic car-leasing agreements.
Courmacs, which says it manages the greatest number of cases arising from the motor finance scandal, is claiming £66mn in damages from Lloyds, from which it will take a 28 per cent cut. The firm, based in the outskirts of Blackburn in north-west England, is preparing similar cases against other banks embroiled in the scandal, one person familiar with the matter said.
The case is the clearest sign yet that lawyers may shun the Financial Conduct Authority’s long-awaited redress scheme to instead pursue lenders directly for compensation.
Darren Smith, managing director of Courmacs, said: “We are launching this omnibus claim because the FCA’s proposed redress scheme looks like it will massively short-change car finance victims. As solicitors, our duty is unambiguous: to advise our clients on all their options to seek redress and secure the maximum compensation for each of them based on their individual case.”
Lloyds has already set aside £2bn in provisions to cover compensation costs for the motor finance scandal. A legal challenge to the bank outside the FCA’s official redress scheme could provide another avenue for aggrieved parties to seek compensation, threatening to further prolong the saga that has already spanned five years.
The FCA is preparing to unveil the details of its redress scheme, which will trigger payouts for 14mn historic loan agreements, after the market closes on Monday. The regulator has predicted its redress scheme will cost lenders £11bn, based on estimates of £8.2bn of consumer compensation and £2.8bn in administrative fees.
However, both banks and consumer groups have raised concerns with the scheme and are considering a legal challenge against the regulator.
Banks have been trying to thwart attempts by lawyers to file such omnibus claims, which allow law firms to package up thousands of claimants’ cases into one dispute. Black Horse itself has brought a case to the Court of Appeal, to be heard in April and which is seeking to block group actions. If the courts rule in favour of Black Horse it could potentially stop the Courmacs case in its tracks.
Despite this, Courmacs believes that its case has merit because each of its claimants purchased cars using “discretionary commission agreements” (DCAs), which lie at the heart of the saga.
DCAs, which the FCA said were banned in 2021, were commissions paid by lenders to car dealerships when they offered loans to customers. The FCA and courts have said these were insufficiently disclosed to consumers and incentivised the charging of higher interest rates.
Banks, which have billions of pounds in provisions over the scandal, meanwhile believe that the FCA has been too heavy-handed and is not following a judgment by the Supreme Court from last year, which significantly scaled back potential liabilities for the scandal.
Specialist lender Close Brothers has been particularly hit by the scandal and has undertaken a significant restructuring, in part because of the probe. The hedge fund Viceroy Research has taken a short position against the lender, arguing it has not set aside enough provisions.
Last month the FCA and the legal regulator jointly criticised law firms and claims management companies for their fees and conduct throughout the dispute.
Courmacs has backing from litigation funders and has been snapping up millions of cases in the hopes of winning large damages. It is also one of the firms that the FT reported was charging ‘exit fees’ to consumers who pull out of cases. It operates using a ‘no win no fee’ basis.
Lloyds declined to comment.
The FCA said: “A redress scheme would be free to use, meaning consumers get fair compensation more quickly and don’t lose as much as 30 per cent of it in fees. Legal representatives need to weigh carefully what is in their clients’ interests.”