FirstRand Considers UK Exit as Supreme Court Case Threatens Motor Finance Business

FirstRand, Africa’s largest lender by market value, is considering exiting the UK market depending on the outcome of a landmark Supreme Court case involving its motor finance business. The case, which centers on historic practices in the auto loan industry, could have far-reaching implications for FirstRand’s operations in the UK, which contribute 10% of its companywide earnings and represent 20% of its balance sheet.

The Case at Hand

FirstRand, through its UK-based MotoNovo unit, is appealing a lower tribunal’s decision that deemed it unlawful for lenders to pay car dealers commissions for selling loans to motorists without their consent. The Supreme Court will hear FirstRand’s appeal alongside a similar case brought by Close Brothers Group Plc, a London-based financial services firm.

The outcome of the case could determine the future of FirstRand’s UK business, which includes not only motor finance but also property and business lending. “The outcome will likely impact the entire lending business,” said FirstRand CEO Mary Vilakazi in an interview with Bloomberg Television.

Potential Exit from the UK

Vilakazi emphasized that the Supreme Court’s ruling will influence FirstRand’s ability to generate returns in the UK. “If sanity prevails, I think we’ll work through these things and get to a better landing. But if not, I suppose questions have to be asked about our ability to generate returns in the long run,” she said.

The case has created significant uncertainty for FirstRand and other lenders in the UK. Analysts at Bank of America estimate that the industry could face up to £38 billion in costs if the Supreme Court rules against the companies. Lloyds Banking Group, the UK’s largest car finance provider, has already set aside £1.15 billion for potential compensation and other costs tied to the Financial Conduct Authority’s (FCA) ongoing probe into auto loan practices.

Government Intervention Denied

The Supreme Court dealt a blow to UK Chancellor Rachel Reeves by refusing to allow the Treasury to intervene in the case. Reeves had argued that the lawsuit was hindering Britain’s regulatory environment. Vilakazi expressed cautious optimism, stating, “I think if the government was not also listening and really mindful of what can happen, then that would be a lot more concerning.”

FirstRand’s Current Position

For now, FirstRand has opted to maintain its provision of £127.4 million for potential liabilities related to the case. The company is awaiting clarity from the Supreme Court, which is set to hear the case in April. The FCA is expected to announce its next steps in May.

Close Brothers, another defendant in the case, has set aside £165 million for potential costs, highlighting the widespread impact of the litigation on the UK’s financial sector.

What’s at Stake?

The Supreme Court’s decision could reshape the UK’s motor finance industry and set a precedent for how lenders interact with car dealers and customers. For FirstRand, the stakes are particularly high, as the UK market represents a significant portion of its global operations.

“Our approach has been to focus, get through the cases, see what the outcomes are, and, like anything else, we evaluate when we’ve got the right information in front of us,” Vilakazi said.

FirstRand’s potential exit from the UK underscores the high stakes of the Supreme Court case and its implications for the motor finance industry. As the court prepares to hear the case in April, all eyes are on the outcome, which could reshape the lending landscape in the UK and beyond.

For FirstRand, the decision will determine whether it can continue to operate profitably in the UK or if it must reconsider its presence in the market. As the financial world watches, the case serves as a reminder of the complex interplay between regulation, litigation, and business strategy in the global economy.

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