Reeves bid to intervene in car finance scandal blocked by court
The Supreme Court has rejected Rachel Reeves's attempt to intervene in the car finance scandal, dealing a blow to banks but a boost to millions of drivers.
The Chancellor had sought to intervene and block tens of billions of pounds in compensation payouts to drivers who had been mis-sold car loans. The Treasury argued the scandal threatened to undermine the UK economy and deter investment, saying pay outs must be limited.
However, the Supreme Court on Tuesday rejected the application. It is scheduled to hear the case on car finance mis-selling in early April.
The case revolves around whether salesmen have a duty to inform customers about bonuses, commissions or fees they received when they sell drivers loans to finance car deals. An early ruling suggested they do, opening up the possibility of a flood of legal claims from drivers who were not informed when they bought their vehicles. Estimates suggest the bill for compensation could total up to £38bn.
The Chancellor had sought to step in to shield banks from a flood of lawsuits. The Treasury said compensation must be proportionate to the harm suffered from any alleged mis-selling.
The failure of the application triggered a slump in share prices for banks and lenders. Close Brothers fell more than 8pc, Vanquis was down more than 6pc and Lloyds Bank was among the biggest fallers on the FTSE 100, down 1.9pc.
The Supreme Court's decision now means only the Financial Conduct Authority will have an opportunity to intervene in the case, which is set to be heard in April.
The UK's financial watchdog had requested to intervene in the case separately over concerns a ruling against lenders could destabilise Britain's banking industry.
Gary Greenwood at Shore Capital said: 'The situation and potential outcome remains subject to significant uncertainty and, although the mood music had arguably been improving, this news highlights that the process will be far from straightforward in its resolution.'
In its application to intervene, the Treasury had said a ruling against lenders at the Supreme Court could 'adversely affect the United Kingdom's reputation as a place to do business, with a consequent impact upon economic growth.'
Charlie Nunn, chief executive of Lloyds Bank, warned in December that the car finance mis-selling scandal was putting investors off investing in the UK.
He said: 'Investors are looking at this and saying this principle of the courts coming up with decisions independently from the regulation – which is then having a significant retrospective look back — is bleeding across the whole economy.'
The Supreme Court is reviewing a ruling made by the Court of Appeals in October, which shocked the industry and went against long established convention.
Lenders Close Brothers and FirstRand, which owns car financing company MotoNovo, later won permission to appeal the ruling at the Supreme Court.
The Treasury and FCA both submitted requests to intervene in the Supreme Court's review in January. News of the Treasury's application caused shares in leading British lenders to surge in January on hopes they would be shielded from claims.
A Government spokesman said: 'We respect the Court's decision to not grant our application to intervene in the Hopcraft case and will monitor it closely.'
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