S&U: Motor finance lender urges Labour to change ‘restrictive’ regulation after profit warning

Specialist lender S&U has urged the new Labour government to change the UK’s “restrictive and constantly changing” regulatory regime after warning that actions by the City watchdog would have a “significant impact” on its motor finance business’ profit.

After an “excellent” 25 years in business, S&U’s auto lender Advantage Finance continues to experience “consolidation and retrenchment”, the London-listed firm said in a trading update on Monday.

It blamed a “period of restrictions and caution” triggered by a section 166 notice from the Financial Conduct Authority (FCA), requiring a firm to produce a report by a so-called skilled person tied to the regulator’s Consumer Duty regime and sector-wide Borrowers in Financial Difficulty review.

S&U said restrictions on its collections capabilities would hit Advantage’s half-year earnings, due on 8 October, and that repayments in the year to date had fallen to 87 per cent of what was due, down from 94 per cent last year – despite the value of monthly collections being “marginally up”.

However, S&U said it expected motor finance profitability to improve once it reaches a “sensible and proportionate conclusion” with the FCA. It said “constructive but vigorous negotiations” to remove the restrictions “are now nearing their conclusion”.

“The welcome (at least for now) election of a Labour government with a strong majority and a stated commitment to restoring Britain’s feeble rate of growth, will, we hope, gradually lead to a more pragmatic and realistic approach to regulation,” S&U added.

“This should particularly benefit the specialist credit markets where recent estimates see between 16 and 17m people in the UK, (up from 12 to 13m in 2018) with non-standard credit requirements.”

S&U has previously said that it is not exposed to the FCA’s separate review into discretionary commission arrangements on car loans, which analysts have estimated could cost the sector up to £16bn in compensation fees.

S&U’s share price has fallen 12 per cent so far this year after warning in February that its pretax profit for 2023 would undershoot consensus estimates by 10 to 15 per cent.

It has flagged poor consumer confidence, high interest rates, the cost-of-living crisis and regulatory demands.

The motor finance firm said on Monday that to meet credit requirements, “Labour ministers must change the restrictive and constantly changing regulatory regime in this country and the paternalistic mindset behind it”.

“Otherwise, the reluctance of both domestic and international funders to invest in a sector, widely recognised as more severely regulated than its international counterparts, will continue,” it added.

“Recent statements from the chief executive of the FCA and others provide some grounds for optimism.”

Elsewhere, S&U said the value of its motor finance advances was 10 per cent lower than the first half of last year, driven by the tightening of criteria and lending price increases.

The firm added that its property lending unit, Aspen Bridging, achieved record profits in June that were more than double those seen last year. The firm added that a “firming residential property sector” and the Bank of England’s move to cut interest rates last month would boost earnings in the second half of 2024.

Aspen’s loan book has increased by £19m this year to £149m as of 31 July, up from £104m a year prior.