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Paragon Banking Group has set aside £6.5 million to cover potential liabilities in its motor finance division, as legal uncertainty mounts over historic commission arrangements between lenders and car dealers. 

The provision, revealed in Paragon’s half-year results for the six months to 31 March 2025, comes as the UK Supreme Court considers a landmark case that could reshape the motor finance industry.  

The case centres on whether it was unlawful for lenders to pay discretionary commissions to dealers without informing customers, an issue that could lead to compensation payouts across the sector. 

While the scale of Paragon’s provision is modest compared to larger peers, analysts warn that the final cost could rise, depending on the outcome of a Supreme Court ruling. 

Despite the looming threat, Paragon’s motor finance business remained stable in the first half of the year, reporting £71 million in new lending, virtually unchanged from the £71.6 million recorded during the same period in 2024. 

Fitch Ratings has maintained Aston Martin Lagonda Global Holdings Plc’s long-term issuer default rating at ‘B-’, with a Negative Outlook, citing increased liquidity risk and weaker-than-expected free cash flow in 2024.  

The credit update, published on 2 June, follows continued financial pressure on the luxury carmaker, despite a recent capital injection and relief from proposed US automotive tariffs. 

The rating action comes two months after Aston Martin’s executive chairman Lawrence Stroll told Bloomberg News (1 April) that he does not rule out taking the company private. Stroll described the carmaker’s market valuation — around £650 million — as a “joke”, noting it is now roughly equal to the amount his Yew Tree consortium has invested since 2020. After the latest £52.5 million capital raise, Yew Tree’s stake will increase to around 33%. 

While Stroll insists the company is “severely undervalued”, Fitch’s view underscores the difficulty of turning around the carmaker’s financial performance. Fitch highlighted a larger-than-anticipated free cash flow deficit in 2024.  

Lloyds Banking Group’s chief executive Charlie Nunn has defended the bank’s conduct in the car finance market, telling MPs there is “no evidence of harm” to customers as the sector awaits a critical Supreme Court ruling on the legality of historical commission arrangements. Speaking to the Treasury Select Committee this week, Nunn addressed the lender’s exposure to the motor finance market. 

The issue centres on discretionary commission arrangements (DCAs), a practice where car dealers were incentivised by lenders to set higher interest rates in exchange for higher commissions, often without the consumer’s knowledge. 

If the Court upholds an earlier decision by the Court of Appeal that a failure to disclose a commission was in breach of the Consumer Credit Act 1974, the Financial Conduct Authority (FCA) has committed to launching a formal redress scheme within six weeks.  

In a statement released in January, the FCA said it was monitoring complaint volumes and would intervene “if firms fail to meet expectations”. 

Saudi Arabia’s vehicle financing sector is expected to see significant growth following the announcement that Hyundai Motor Company and the Public Investment Fund (PIF) have begun construction of a new automotive manufacturing facility at the King Salman Automotive Cluster in King Abdullah Economic City. 

Structured as a joint venture, with PIF holding a 70% stake and Hyundai the remaining 30%, the plant will have an annual production capacity of 50,000 vehicles, including both internal combustion engine (ICE) and electric vehicles (EVs). 

The majority of output is expected to serve the domestic market, where Hyundai already maintains one of the largest market shares, particularly in the passenger vehicle segment. The new production capacity is expected to directly support the expansion of Saudi Arabia’s vehicle financing market, with implications for both retail and fleet finance providers.  

Analysts expect increased availability of locally manufactured vehicles to improve affordability and lower lead times, enabling lenders to expand consumer credit offerings. 

The new UK-India trade deal is expected to significantly reduce tariffs on vehicle exports to India and create new investment opportunities across the automotive supply chain. 

The multi-industry agreement, described by the UK government as the “most economically significant” post-Brexit trade deal, lowers import tariffs on high-value British vehicles entering India from over 100% to 10%, under a quota system. In return, the UK has agreed to reduce duties on a range of Indian goods, including auto components. 

The cut in Indian tariffs is expected to increase demand for luxury vehicles manufactured in the UK, such as models from Aston Martin, Bentley, Rolls-Royce, and Jaguar Land Rover (JLR). Tata Motors, which owns JLR, is expected to be among the primary beneficiaries, with analysts predicting a boost in Indian sales volumes for UK-built models.  

Indian automotive firms, including Bharat Forge, TVS Motor Company and Ashok Leyland, are expected to gain access to UK markets with lower-cost auto components and parts.