Chancellor intervenes in landmark car loan mis-selling case to shield lenders

Chancellor Rachel Reeves has reportedly taken action to protect car loan providers from potential multibillion-pound payouts in a pivotal mis-selling case, warning that an imminent Supreme Court judgment risks applying a proverbial 'sledgehammer to crack a nut'.

The Supreme Court is set to hear an appeal in April brought by car loan providers contesting an October ruling by the Court of Appeal, which sided with consumers who alleged “secret” commissions on car loans, finding it unlawful for banks to pay commissions to car dealers without obtaining customers' informed consent.

The Supreme Court is preparing to hear appeals on three related motor finance cases involving both DCA and non-DCA commission models where the Court of Appeal had ruled in favour of the consumer. 

The Court of Appeal’s decision based on common law cut across existing City regulations and Financial Conduct Authority's (FCA) ongoing investigation into discretionary commission arrangements, opening the door to a surge of claims.

According to the Financial Times The Treasury has now made the rare move of seeking permission to intervene in the upcoming Supreme Court case, amid fears that banks and other lenders could face compensation claims that analysts at HSBC estimate could total £44 billion, paralleling the £50 billion paid by banks in the payment protection insurance (PPI) mis-selling scandal.

Reeves is reported to be concerned that the case could destabilise both the motor finance and car industry, where 80% of new vehicles in the UK are bought on finance, and make it harder for consumers to access loans as well as undermine the UK’s pro-business reputation.

A submission to the Supreme Court by the Treasury, seen by the Financial Times, warns that the case could inflict “considerable economic harm” and jeopardise the availability and affordability of motor finance.

The Treasury argues that if liability is confirmed, any remedies should be “proportionate to the loss actually suffered by the consumer” and avoid providing a “windfall.” 

The Supreme Court, led by president Lord Reed and deputy president Lord Hodge, will hear the case in early April.