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Prime Minister Rachel Reeves on Monday launched efforts to protect car loan providers from billions of pounds in payouts in a landmark mis-selling case that the Treasury warned could damage Britain’s reputation as a place to do business.
Amid fears that banks and other lenders could face compensation bills running into tens of billions of pounds, the Treasury has taken the unusual step of seeking permission to intervene in the upcoming Supreme Court case.
Reeves fears the incident could cause chaos in auto finance and the auto industry, making it more difficult for consumers to get loans. In the UK, around 80% of new cars are financed.
If the Treasury succeeds, it will deal a blow to consumer groups and claims management companies that have been encouraging car finance customers to lodge complaints with the Financial Ombudsman.
The Prime Minister, who is attending the World Economic Forum in Davos this week to try to boost investment in the UK, fears the huge potential dividend would have a chilling effect on the banking sector, hinder growth and damage Britain’s pro-business reputation. there is.
Santander is reconsidering its presence in the U.K., citing lower limited business revenues compared to other markets, according to people familiar with the matter. Last November it set aside £295 million to cover the potential cost of mis-sold car loans.
In April, the Supreme Court will hear an appeal filed by car loan providers of an October ruling by the Court of Appeals that sided with consumers who complained about “secret” fees on car loans.
The ruling that it is unlawful for banks to pay commissions to car dealers without customers’ prior consent has sent shockwaves through the UK banking system and led to thousands of pounds in compensation payments from lenders FirstRand Bank and Close Brothers.
HSBC analysts estimated total compensation costs could be as high as £44 billion, reflecting the £50 billion the bank paid out following the payment protection insurance mis-selling scandal.
In a Supreme Court filing seen by the Financial Times, the Treasury argued the case “is likely to cause significant economic harm and could impact the availability and cost of car finance for consumers”.
The Treasury said the incident “could create a perception that UK regulation is uncertain”. Last week, Reeves called on regulators to sweep away rules that hinder growth.
It also claims that if liability is proven, the Treasury will try to persuade the Supreme Court that “any relief should be proportional to the losses consumers actually suffered and avoid windfalls.”
Treasury insiders argue the government wants to maintain the viability of a financial sector vital to buying new and used cars, rather than siding with banks over unfair consumers.
“If lenders break the law, consumers should be compensated proportionate to the losses they have suffered,” said one Reeves colleague.
“But the Prime Minister is concerned that the ruling risks using a sledgehammer to crack a nut. “This won’t be good for consumers and it won’t be good for the industry.”
The judges, including Lord Chief Justice Lord Reed and his deputy Lord Hodge, are due to hear the landmark case in early April.
The Supreme Court, which replaced the House of Lords’ Appeal Committee as Britain’s highest court in 2009, allows official bodies to intervene in hearing cases.
Permission is granted only if the court determines that mediation will provide “substantial assistance” to the judge who will hear the case.
The Treasury’s move will be welcomed by UK lenders, who have held urgent talks with the government to warn of potential disruption to the consumer credit sector. Part of the discussion centered around the possibility of the government introducing new legislation, a person familiar with the debate said.
Lloyds chief executive Charlie Nunn had called for the government to intervene, warning in October that the court ruling had sparked an “investability problem” in the UK.
