The Treasury is bidding to step into a major Supreme Court case that could drag Britain’s motor finance industry into a costly mis-selling crisis on a par with the infamous PPI scandal.
Ministers want the court to consider the broader impact on investor confidence in the UK’s regulatory regime and, crucially, to ensure that any compensation orders are kept “proportionate.”
It is up to the Supreme Court to decide whether the Treasury’s intervention will be allowed. However, the government’s push to influence the outcome underscores growing concern over potential liabilities that some analysts estimate could reach £44 billion — almost matching the £50 billion bill banks faced over PPI claims.
“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 supporting millions of motorists,” a Treasury spokesperson said.
The news gave an immediate boost to banks heavily involved in motor finance. Close Brothers, a merchant bank with a sizeable car finance business, saw its shares rise by 20 per cent to 294p. Lloyds Banking Group, which owns Black Horse vehicle finance, gained 4 per cent to 61p.
Private sector analysts welcomed the Treasury’s move. RBC Capital Markets described it as “clearly positive for the UK banks with motor finance exposure.” However, it also noted that “there is a clear separation of powers in the UK, so the ultimate outcome will be solely determined by the views of five Supreme Court judges.”
The Court of Appeal triggered alarm across the industry in October by ruling that undisclosed commissions on motor loans were unlawful, leaving lenders liable for refunding borrowers. The Financial Conduct Authority (FCA) has been investigating the sector’s use of commissions, and its retrospective review reaches as far back as April 2007. About 80 per cent of vehicle purchases in the UK are financed, making the potential fallout particularly large.
Banks have already begun setting aside funds for potential payouts: Lloyds has earmarked £450 million, while Santander’s UK division holds £295 million. Close Brothers has not yet made a provision, but in recent months has suspended its dividend and sold off its wealth management arm to boost capital by £400 million.
Jefferies analysts highlighted that “the argument that any compensation due should be proportionate is key.” If upheld by the Supreme Court in April, the Court of Appeal’s decision could force a wave of refunds across the industry, undermining some of Britain’s biggest lenders and forcing a sector-wide restructuring reminiscent of the PPI saga. For now, the Treasury’s intervention offers a glimmer of hope for motor finance firms, but also confirms the high stakes involved.
