Chancellor Rachel Reeves' intervention in car loans case rejected

The UK Supreme Court has rejected Chancellor of the Exchequer Rachel Reeves' request to intervene in a landmark case concerning controversial car loans. The case, scheduled for trial in April, centers on whether lenders should explicitly inform customers of the commission amounts they receive from car loan sales.

The Court of Appeal ruled last year that lenders should increase transparency, but lenders appealed the ruling, and the case will be heard in April. The UK Treasury attempted to intervene last month, citing concerns that the ruling could reduce the supply of car loans. The Treasury told the BBC that it respects the Supreme Court's decision on Monday to reject its intervention request.

The vast majority of new cars, as well as many used cars, are purchased through financing agreements. In 2021, the UK Financial Conduct Authority (FCA) banned the practice of dealers receiving commissions from lenders based on the interest rates offered to customers. The FCA argued that this practice incentivized dealers to charge buyers higher interest rates than necessary. Since January of this year, the FCA has been considering whether compensation should be paid to those involved in such transactions prior to 2021.

A ruling by the Court of Appeal last month expanded the scope of those potentially eligible for compensation, leaving banks and other lenders facing the prospect of paying out millions of pounds in damages. Some analysts estimate that the total compensation could amount to as much as £30 billion, and this saga could ultimately become the largest compensation scheme involving financial products since the Payment Protection Insurance (PPI) scandal.

The government stated last month that while it wants to ensure customers are compensated, it also wants the automotive industry to continue to "support millions of vehicle owners." The government at the time expressed concerns that the amount of compensation paid to lenders could weaken the competitiveness of UK banks. A Treasury spokesperson said on Monday: "We respect the court's decision not to approve our application to intervene and will be following this matter closely."

The court also rejected intervention requests from Consumer Voice (a compensation advisory firm) and the Finance & Leasing Association (an industry association), but approved applications from the UK Financial Conduct Authority (FCA) and the National Franchised Dealers Association. The court has limited time and therefore sometimes rejects intervention requests from parties it believes may offer similar evidence. Wayne Gibbard, head of automotive finance at law firm Shoosmiths, said: "It is highly unusual for the government to intervene in court judgments to which it is not directly related, particularly to pursue policy issues."

Shares in UK banks involved in the case fell on Monday, with Lloyds Banking Group down 4% and Close Brothers Group down nearly 15%.