Secure Trust Bank has issued a profit warning following a recent UK Court of Appeal ruling that’s sent shockwaves through the motor finance sector. The October ruling mandates that motor finance brokers fully disclose commission details to customers purchasing car loans. This regulatory shift has led several banks, including Secure Trust, Metro Bank, and Close Brothers, to temporarily halt new loan offerings, creating widespread uncertainty within the industry.
Since the ruling, shares of prominent banks like Close Brothers and Lloyds have sharply declined, with Secure Trust’s stock plunging by 22.3% to a record low on Friday. The fallout has even prompted Santander’s UK branch to delay the release of its third-quarter earnings as it evaluates the potential financial impact.
In a statement, Secure Trust revealed that it had paused loan collections, which contributed to a surge in loans reaching default status. Although collections have since resumed, the recovery process is taking longer than anticipated. Consequently, the bank expects its annual underlying profit before tax to fall 10-15 million pounds short of market expectations, landing between 29-34 million pounds instead of the forecasted 44.4 million pounds.
“We are disappointed that it will take longer than expected to recover value from the excess level of defaulted vehicle finance balances,” said CEO David McCreadie. He also acknowledged that recent legal developments have amplified uncertainty, clouding 2024 profit projections.
The ruling has cast a spotlight on potential mis-selling of motor finance products, with analysts warning of a widening scope of cases that may require costly compensation. Meanwhile, the UK’s finance regulator is contemplating a consumer redress scheme potentially exceeding a billion pounds in response to complaints of overcharged commissions on car purchases.
Metro Bank, which had briefly paused certain asset finance transactions, confirmed it has since resumed normal operations, though the financial impact remains undisclosed.
