In a significant development, Chancellor Rachel Reeves’ efforts to intervene in a high-profile case regarding contentious car loans have been thwarted by the UK’s highest court. Scheduled for April, the Supreme Court will make a crucial ruling on whether lenders were required to explicitly disclose the commission they earned from selling car loans to customers. The Court of Appeal’s previous decision stated that lenders should have been more transparent about this, leading to lenders appealing this ruling in the upcoming case.
The Treasury had made an attempt to step in last month, citing concerns that the ruling could potentially reduce the availability of car loans. However, the Supreme Court’s decision to block this intervention was acknowledged by the Treasury, as confirmed in a statement given to the BBC. The majority of new car purchases, as well as a considerable number of used car transactions, are facilitated through finance agreements, underlining the widespread impact of this case.
Following the Financial Conduct Authority’s ban in 2021 on deals where dealers received commissions from lenders based on customer interest rates, discussions have been ongoing regarding potential compensation for individuals involved in such agreements prior to 2021. This has raised the possibility of significant payouts from banks and other lenders, with estimations suggesting the total compensation could reach up to £30 billion. The ruling last month by the Court of Appeal further expanded the scope of individuals eligible to receive compensation in what could emerge as one of the largest financial product compensation schemes since the infamous payment protection insurance (PPI) debacle.
With the government emphasizing the importance of customer redress while also supporting the vehicle ownership sector, concerns have been raised over the potential consequences of a substantial compensation bill for lenders on the competitiveness of UK banks. The court’s decisions on various applications to intervene in the case have highlighted the complexity and significance of the upcoming ruling. Shares of UK banks implicated in the case experienced a decline, with Lloyds Banking Group witnessing a 4% drop and Close Brothers Group recording a notable 15% decrease in value on Monday
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