Lenders face a £30bn compensation invoice to settle the motor finance scandal

Lenders could be hit with a £30billion bill to cover compensation costs related to the motor finance scandal, ratings agency Moody’s has said.

A court ruling recently found that banks must fully inform customers about the existence and size of commissions when selling car loans.

The scale of the potential payout would make motor finance mis-selling the most expensive consumer banking scandal in Britain since PPI in the 2000s, which cost banks £50billion. 

Payouts: A court ruling recently found that banks must fully inform customers about the existence and size of commissions when selling car loans

A review into the scandal by the City regulator could ultimately result in redress costs of between £8billion and £21billion, Moody’s said.

And the recent court ruling could add £9billion to the bill, the ratings agency said, bringing the total to £30billion in its ‘worst-case’ modelling.

It is a steep increase on a previous analyst estimate, which put the total potential cost to the industry at £16billion. 

The Court of Appeal judgement published in October has rocked the industry.

Car finance accounts for about a fifth of loans made by lender Close Brothers. 

Shares have fallen by 45 per cent since the ruling. It plans to file an appeal against the judgement.

Lloyds, which owns motor finance provider Black Horse, has set aside £450million to cover the potential cost of an investigation into car finance deals.

Santander has delayed its results due to uncertainty about the court verdict.