In a significant development within the UK’s motor finance sector, the Supreme Court has denied Chancellor Rachel Reeves’ attempt to intervene in a landmark case concerning the mis-selling of car loans. This decision has profound implications for lenders, consumers, and the broader financial landscape.
Background of the Case
The controversy centres on undisclosed commissions paid by lenders to car dealers for arranging finance agreements. In October 2024, the Court of Appeal ruled that such hidden commissions were unlawful, potentially paving the way for substantial compensation claims from affected consumers. Analysts estimate that the total compensation could reach up to £44 billion, drawing parallels to the previous Payment Protection Insurance (PPI) scandal.
Chancellor’s Intervention and Supreme Court’s Decision
In January 2025, Chancellor Rachel Reeves sought permission to intervene in the case, expressing concerns that massive compensation payouts could destabilise the motor finance market and restrict consumers’ access to car loans. However, on February 17, 2025, the Supreme Court rejected this intervention, a move that has been both criticised and supported by various stakeholders.
Implications for Lenders and the Market
The Supreme Court’s decision has led to immediate financial repercussions for major lenders involved in motor finance. Shares in institutions like Lloyds Banking Group and Close Brothers experienced notable declines following the announcement. Lloyds, for instance, has increased its provision for potential compensation to over £1.1 billion, significantly impacting its annual profits.
Looking Ahead
The Supreme Court is scheduled to hear appeals from lenders, including Close Brothers and FirstRand, from April 1 to 3, 2025. The outcome of this hearing will be pivotal in determining the future landscape of the UK’s motor finance industry, especially concerning regulatory practices and consumer rights.
What Does This Mean for Your Business?
The Supreme Court’s decision could have major implications for lenders, financial institutions, and consumers. If you’re in the motor finance sector, it’s crucial to stay ahead of regulatory changes and ensure your business is fully compliant with FCA regulations.
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