An establishment stitch-up at the expense of consumers

Telegraph

2 hours ago

The market reaction to the Supreme Court's intervention in the car finance mis-selling scandal tells you everything you need to know about this grubby saga.
Shares in Lloyds Bank, the UK's biggest car finance provider through its Black Horse brand, jumped as much as 7.5pc when trading commenced on Monday morning, leaving it at the top of the FTSE 100 leaderboard.
The share price of Close Brothers, a specialist lender that is disproportionately exposed to the car finance market, surged as much as 25pc having sunk to 30-year lows as the industry braced for PPI-sized payouts. Shares in Bank of Ireland and Barclays, both of which have car finance arms, rose 4.2pc and nearly 2pc respectively.
Make no mistake about it, the Supreme Court's ruling is a serious let-off for the banks and other lenders that have a big presence in the car loans space.
True, revised payout estimations of between £9bn and £18bn to customers who were mis-selling victims is not to be sniffed at. However, even the top end of the range is less than half the £44bn bill the sector was collectively thought to be facing before the Supreme Court decision. The lower end would be just a quarter.
It is a massive result for an industry that fought this case tooth and nail. Anthony Coombs, a former Tory MP and now chairman of lender S&U, whose shares had tanked 33pc at one stage, described it as 'a victory for common sense'.
I'm not so sure about that. I certainly share the concerns of many about the shameless ambulance-chasing law firms and claims management firms that have helped fuel Britain's compensation culture.
Clearly, it means there is a high risk of people jumping on the bandwagon and lodging bogus claims that the banks then feel the need to recover through higher borrowing costs for all of us. But that's hardly a new phenomenon – there will always be a relatively small number of chancers looking to game the system wherever they can.
I'm less inclined to celebrate what has the unmistakable feel of an establishment stitch-up at the expense of consumers. I have a natural aversion to the armies of highly-paid lobbyists who go into bat for big business, skewing what is already a massive power imbalance even further. Consumers already face a David-versus-Goliath battle to be treated fairly.
In this case, the scare tactics employed were particularly shameless as industry campaigners sought to ensure the Supreme Court's ruling was as favourable as possible to the banking community.
Even now, despite a significant legal climbdown, these same activists felt the need to take to the airwaves to issue fresh apocalyptic warnings. Stephen Haddrill, the director general of the Finance & Leasing Association, claimed the scheme could push up borrowing rates for car-buyers as if somehow large corporations have no choice but to always pass on any additional costs to their customers.
The same arguments were rolled out after Covid when companies claimed they were lifting prices to offset their own cost increases and they were no more convincing back then – with research suggesting pandemic profiteering was rife among the biggest companies.
As if that wasn't sufficiently disingenuous, John Phillipou, chairman of the Finance & Leasing Association, weighed in too, complaining that there was a risk of harm to Britain's 'investability'.
Still, lobbying is what lobbyists do and at least they make no attempt to hide their true intentions. Moreover, Phillipou is only echoing our alarmist Chancellor, and it is surely far more outrageous that she sought to meddle in the outcome.
Rachel Reeves has absolutely no business at all involving herself in such matters, while there is zero evidence to back up her suggestion that large-scale payouts represented a threat to growth.
Yet, as with the wrong-headed ousting of the chairman of the competition watchdog, the Treasury will stop at nothing in its attempts to deflect blame for Britain's floundering economy from the Chancellor's job-wrecking tax raid. The reasons for the UK's lack of competitiveness are innumerable and too often they can be laid at the door of 11 Downing Street.
Reeves's willingness to side with bank bosses instead of standing up for the little man is also disquieting. The job of the Supreme Court judges is to ignore the noise and correctly apply the law but ministers seem to have allowed themselves to be captured by the lobbying fraternity. Voters may see it as another betrayal from a party that has waged war on hard-working families with its tax blitz.
As Liberal Democrat MP Bobby Dean rightly said, Government interventions like this set a bad precedent if the reason for intervening is that it might damage industry, 'because then almost every consumer redress case would fall'.
Dean, who is a member of the powerful Treasury select committee that polices the City, regulators and the Treasury, points out that compensation schemes give consumers confidence to borrow and invest, 'if they know they will be protected when companies take advantage of them'.
It is now down to the Financial Conduct Authority (FCA) to restore the balance after it confirmed it will consult on a redress scheme for those still entitled to compensation. But that hardly inspires confidence.
After all, this is the same FCA that was described in a damning report by MPs and Lords just last year, as 'incompetent at best, dishonest at worst'; its actions as 'slow and inadequate.' The chances of the watchdog suddenly showing some teeth seem slim.