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.
Paragon half-year 2025 results
While the scale of Paragon’s provision is modest compared to larger peers, Lloyds Banking Group has set aside £1.2 billion, analysts warn that the final cost could rise, depending on the outcome of the Supreme Court’s ruling expected later this summer.
Ratings agency Moody’s has estimated industry-wide exposure could top £30 billion.
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. The bank continues to focus on specialist segments largely overlooked by mainstream lenders, including light commercial vehicles (LCVs), motorhomes, caravans, and campervans.
“Our motor finance business is a focused operation targeting propositions not addressed by mass-market lenders,” the company said, noting that the majority of new business is introduced via specialist brokers. This broker-led model remains central to Paragon’s niche strategy.
Although volumes were constrained by elevated interest rates and tighter pricing competition, application activity remained strong, and the business closed the period with a year-on-year increase in its new business pipeline. Paragon maintained its focus on protecting margins over pursuing aggressive growth.
The lender also expanded its presence in electric vehicle (EV) finance, aligning with broader shifts in consumer demand and environmental goals. Lending for battery electric vehicles, including LCVs, reached £4.3 million, with total EV-related advances, when including hybrids, rising 2.3% to £9.3 million. More than 13% of Paragon’s new motor finance lending now supports low-emission vehicles.
“As electric vehicles become more widely viable and popular, our EV lending supports the net-zero aspirations of our customers,” the bank said, citing data from the Society of Motor Manufacturers and Traders (SMMT) showing EVs accounted for 19% of new car registrations in March 2025, up from 15% a year earlier.
Elsewhere, Paragon delivered a strong financial performance, with pre-tax profits up 26.7% to £149.4 million, supported by a 4.9% expansion in the loan book and 11.4% growth in overall new lending to £1.38 billion. The bank’s broker-driven SME and asset finance businesses were standout performers, with asset finance lending rising 11.1% to £169.9 million, far outpacing the market average of 6.4%.
“Our resilient business model gives us confidence in managing the evolving external environment,” said Chief Executive Nigel Terrington. “We delivered another strong financial and operational performance in the first half of 2025.”
Paragon’s broker portal, now handling nearly 90% of SME lending applications, has been instrumental in driving efficiency gains, with faster approval times and improved conversion rates. These capabilities could prove increasingly vital as the bank navigates the regulatory and reputational challenges linked to motor finance.
While Paragon’s direct exposure to the motor finance review remains limited within its broader portfolio, the outcome of the Supreme Court ruling could still have material implications, both for the bank and for the wider sector.
As the industry awaits clarity, Paragon said in its half year results, that it is leaning on its niche focus, broker partnerships, and tech-driven efficiencies to stay ahead of the curve.
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Frequently asked questions
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1. Why has Paragon set aside £6.5 million in its motor finance division?
Paragon has made the provision in anticipation of potential liabilities stemming from a legal case concerning historic discretionary commission arrangements between lenders and car dealers. The UK Supreme Court is reviewing whether it was unlawful to pay such commissions without informing customers.
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2. What is the Supreme Court case about, and why does it matter?
The case challenges whether car finance lenders breached consumer protection laws by paying discretionary commissions to dealers without transparency. A ruling against the lenders could result in widespread compensation claims across the industry, with estimates of total liabilities potentially exceeding £30 billion.
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3. How exposed is Paragon to this issue compared to other banks?
Paragon’s £6.5 million provision is modest when compared to larger banks like Lloyds, which has set aside £1.2 billion. This reflects Paragon’s more focused, specialist approach to motor finance, with a relatively smaller share of the overall market.
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4. What areas of motor finance does Paragon specialise in?
Paragon focuses on niche and underserved segments such as light commercial vehicles (LCVs), motorhomes, caravans, and leisure vehicles. The bank sources most of its business through specialist brokers rather than mainstream dealerships.
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5. Is Paragon active in electric vehicle (EV) finance?
Yes. Paragon has expanded its EV lending, with £4.3 million in loans for battery electric vehicles during the period and a total of £9.3 million when including hybrids. Over 13% of the bank’s new motor finance lending now supports electric or hybrid vehicles, aligning with customer demand and net-zero goals.
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