The Treasury has sought to intervene in a court case, due to be heard in April, where the Supreme Court will rule on whether a previous judgment on hidden motor finance commission arrangements should be upheld
Shares in motor finance heavyweights Lloyds and Close Brothers soared on Tuesday after Chancellor Rachel Reeves stepped in to intervene in a court case concerning the potential mis-selling of car loans.
The Supreme Court is set to hear a case in April, deciding whether to uphold an October ruling on concealed motor finance commission arrangements. This could result in car finance companies paying out up to £30bn in compensation to consumers.
However, this week the Treasury lodged an application with the Supreme Court, arguing it should be allowed to present evidence in the forthcoming case. It suggested that the case could harm the industry and make securing car finance loans more challenging and costly.
It also warned it could “generate a perception that regulation in the UK is uncertain”. The Financial Times first reported the letter, which cautioned that “any remedy should be proportionate to the loss actually suffered by the consumer and avoid conferring a windfall”.
Following this, Lloyds and Close Brothers, two of the sector’s largest players, saw their share prices jump 4% and 21% respectively on Tuesday. The Supreme Court will pass judgement on an October decision made in the Court of Appeal, which declared it illegal for car dealers to earn commission from lenders without obtaining the customer’s fully informed consent to the payment.
Customers should have been explicitly informed about the commission earned by dealers and given their consent. The ruling has now triggered a potential surge in claims from drivers who suspect they were duped into car finance deals in the past.
As the sector braces for the court’s decision, the Financial Conduct Authority (FCA) is conducting its own probe to determine the extent of wrongdoing in the motor finance market and how to compensate those affected. Legal experts representing potential claimants have lambasted the intervention.
Elizabeth Comley, COO of Slater and Gordon, stated her firm is advocating for “tens of thousands of individuals who have been unfairly impacted” by the practices of car finance sellers. She argued: “While we recognise the importance of maintaining confidence in British lenders, this cannot come at the expense of justice for the individuals affected.
“Consumers deserve accountability and redress when they have been wronged, and Rachel Reeves’ attempts to shield lenders from the consequences of their actions risk undermining public trust in the financial sector as a whole.”
This controversy follows Rachel Reeves’ push for regulators to cut red tape to support economic growth and enhance the competitiveness of the UK’s financial services industry.
A Treasury spokesperson said: “We want to see a fair and proportionate judgment that ensures compensation to consumers that is proportionate to the losses they have suffered, and allows the motor finance sector to continue playing its role in supporting millions of motorists to own vehicles.”
