Chancellor's attempt to intervene in car finance scandal branded ‘disgraceful'
While the supreme court largely sided with finance companies on Friday – helping lenders avoid a £44bn compensation bill – Dean said the chancellor had gone too far to show she was on the side of business.
That included a controversial bid to intervene in the supreme court hearing in January, in which she urged judges to avoid handing 'windfall' compensation to borrowers. That attempt was ultimately rejected.
'I thought it was pretty unprecedented and pretty disgraceful,' said Dean, who sits on an influential parliamentary committee which scrutinises City firms, regulators and the Treasury.
The chancellor had also been considering overruling the supreme court's decision with retrospective legislation, to help save lenders billions of pounds, in the event that it upheld the entirety of October's court of appeal ruling, the Guardian revealed last week.
'What message does it send to consumers that the industry can do wrong, the courts can support the claim that they've done something wrong, but the government is ready to intervene and defend the industry that's done wrong, instead of defending the consumer? I think that's a really bad message to put out,' Dean said.
'I feel like this government sometimes is too keen to demonstrate it is on the side of business, and is sometimes not understanding the rights of consumer,' he added.
Reeves intervention efforts followed intensive lobbying by the car loan industry, which feared that the supreme court would uphold last October's shock ruling by the appeal court.
That October ruling suggested commission payments paid by lenders to car dealers were unlawful, unless explicitly disclosed to borrowers. It could have opened the door to billions of pounds of compensation claims against companies including Lloyds Banking Group, Santander UK, Barclays and Close Brothers, and result in a redress scheme that rivalled the £50bn payment protection insurance saga.
Lobby group the Financing and Leasing Association (FLA) – which represents car lenders – had warned the government that a big compensation bill could push some lenders into failure, while others would offer fewer or more expensive loans to claw back their losses. That could restrict options for borrowers who relied on credit.
City bosses were also warning the Treasury that ongoing uncertainty over the scandal was deterring international investment in the finance industry, and was therefore putting the UK's economic growth at risk
The FLA's head of motor finance Adrian Dally said that the lobby group was 'pleased' with the supreme court's ruling, and felt its concerns had been heard by Treasury and regulators. He confirmed the FLA had been speaking with the Treasury nearly every week in the wake of the court of appeal ruling in October, including about its concerns on the car finance case.
However, he rejected suggestions the Treasury had prioritised the industry over consumers. 'We absolutely disagree with that because, ultimately, this [car finance] industry is a vital part of the nation's infrastructure, and enables millions of people to get to work, to get to school, and that was put at risk by these court cases. And ultimately, we believe the industry's interests and the consumers' interests are aligned on this.'
Sign up to Business Today
Get set for the working day – we'll point you to all the business news and analysis you need every morning
after newsletter promotion
But Dean said government interventions set a 'really bad precedent if you're going to intervene on cases of consumer redress on the basis that it might damage industry, because then almost every consumer redress case would fall,' Dean said.
Dean added that compensation schemes can give consumers confidence to borrow and invest, knowing will be protected when companies take advantage of customers. 'Obviously, the best industry is one where these redress systems are not needed in the first place, because people play by the rules.'
The Financial Conduct Authority is due to confirm whether or not it will press ahead with a compensation scheme before the stock markets open on Monday morning.
A Treasury spokesperson said: 'It is vital that consumers have access to motor finance to enable them to spread the cost of a vehicle in a way that is manageable and affordable.
'We respect this judgment from the supreme court, and we are working with regulators and industry to understand the impact for both firms and consumers.
'We recognise the issues this court case has highlighted, and we are already taking forward significant changes to the Financial Ombudsman Service and the Consumer Credit Act.'
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Daily Mail
5 minutes ago
- Daily Mail
Millions of motorists will have to wait until next year to receive motor finance compensation after Supreme Court case, competition watchdog reveals
Millions of motorists overcharged for car finance will have to wait until next year for settlements – with consultation on a proposed compensation scheme worth up to £18bn not due to launch until October. The Financial Conduct Agency announced the development this afternoon after a Supreme Court ruling on Friday – but said it would 'take time to establish a (compensation) scheme'. The FCA estimates 'most individuals will probably receive less than £950 in compensation' per claim, with the total value of the scheme between £9bn and £18bn. Some individuals who bought several cars via hire purchase could receive multiple payouts. Officials said they hope 'to start getting people any money they are owed next year'. In the meantime, the watchdog urged people to wait rather than taking action via a claims management company or law firm as it could 'cost you a significant chunk of any money you get'. It said it has already taken action against publishers of 225 adverts 'about potentially exaggerated amounts of compensation'. The FCA's stance was today backed by Money Saving Expert guru, who told his followers on X (formerly known as Twitter) to avoid claims firms or solicitors and that 'the most important thing is to DO nothing'. The FCA said 'many motor finance firms were not complying with rules or the law by not providing customers with relevant information about commission paid by lenders to the car dealers who sold the loans'. It defended its action in the wake of the court ruling, saying it 'moved quickly' on 'steps to set up a proposed compensation scheme because it wants to provide clarity and certainty to consumers, firms and investors as quickly as possible'. But FCA officials stressed that 'want to ensure the integrity of the motor finance market so it works well for consumers now and in the future' and that the compensation scheme would need to 'balance principles including fairness, timeliness, and certainty'. Nikhil Rathi, chief executive of the FCA, said: 'It will take time to establish a scheme but we hope to start getting people any money they are owed next year. 'Our aim is a compensation scheme that's fair and easy to participate in, so there's no need to use a claims management company or law firm.' He added: 'It is clear that some firms have broken the law and our rules. It's fair for their customers to be compensated. 'We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal.' The FCA is working on rules to govern the finance schemes, used by 2.2m people each year, to ensure lenders 'consistently, efficiently and fairly decide whether someone is owed compensation and how much'. The FCA said motorists who have already complained don't need to do anything but urged others to submit a complaint, if they think they have paid too much for motor finance. It added it would be 'working intensively and engaging widely over the coming weeks on the detail of how a scheme would work'. The Supreme Court's ruling found that hidden commissions from lenders to dealers on car loans were not in themselves unlawful, excluding several million motorists from making claims. The court said car dealers did not need to operate with a 'single-minded' duty to 'act only in their customers' best interests' when arranging finance – and rejected a claim finance companies had bribed car dealers. But it found the payment of particularly large commissions, without customers' knowledge, were unfair and affected customers in those cases should be compensated. The five judges said a case where the commission was 55pc of the total charge for credit was 'unfair' and that a failure to disclose the 'exact nature of the commission, and the concealment of the commercial tie between the dealer and the lender' was wrong. Analysts for investment bank Jefferies heralded the judgement as a 'huge win' for car financing firms as it means the companies can avoid a much larger compensation bill which some market experts forecasted could be as large as that for PPI (payment protection insurance). The scandal led to payouts totalling £50bn. To make a report about potential mis-selling of car finance, visit
Daily Mail
5 minutes ago
- Daily Mail
FCA reveals plans for car finance compensation scheme that could lead to payouts for millions of drivers
Millions of drivers could still receive a pay out for 'mis-sold' car finance deals after the Financial Conduct Authority (FCA) said it is looking into a compensation scheme. On Friday, the Supreme Court delivered a blow to car buyers after it sided with major lenders in the car finance scandal. Had the decision gone the other way, it could have led to £44billion of payouts dubbed 'PPI on wheels'. However, today, the FCA announced it will consult on an industry-wide redress scheme that could begin paying out from next year. The financial watchdog says it hopes the scheme will offer fairness and certainty to both customers and firms and in doing so, ensure the integrity of the car finance industry. Millions of car owners have been hoping for payouts over claims they were 'mis-sold' finance deals dating back more than a decade. Many car finance firms failed to comply with rules or the law, by not providing customers with relevant information about commission paid by lenders to the car dealers who sold the loans. 'It is clear that some firms have broken the law and our rules, said Nikhil Rathi, chief executive of the FCA, 'it's fair for their customers to be compensated.' He added: 'We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal. 'Our aim is a compensation scheme that's fair and easy to participate in, so there's no need to use a claims management company or law firm. If you do, it will cost you a significant chunk of any money you get. 'It will take time to establish a scheme but we hope to start getting people any money they are owed next year.' Who will be entitled to compensation? While some car finance customers won't get compensation because in many cases commission payments were legal, the Supreme Court ruled that in certain circumstances the failure to properly disclose commission arrangements could be unfair and therefore unlawful. The FCA will propose rules on how lenders should decide whether someone is owed compensation and how much. It says it will monitor if firms are following the rules and act if they're not. The Supreme Court agreed with several factors the FCA had identified which could point towards an unfair relationship and fall foul of the Consumer Credit Act (CCA). Such factors could include the size of the commission relative to the loan charge, the nature of the commission, for example, whether it is discretionary and the characteristics of the customer. How much compensation is due to car buyers? The total cost of the compensation scheme is expected to rise above £9billion with the FCA estimating that most individuals will probably receive less than £950 in compensation. The consultation will launch by early October. If the compensation scheme goes ahead, the first payments should be made in 2026. What should you do if you think you are eligible? People who have already complained don't need to do anything, according to the FCA. However, anyone who is concerned they were not told about commission and think they may have paid too much for their car finance lender should complain now. There is no need to use a claims management company or law firm and doing so could cost someone around 30 per cent of any compensation paid. The FCA recognises that car finance customers want to receive any compensation owed quickly while car finance firms, lenders and investors want certainty. The regulator says it will be working hard over the coming weeks on the details of how a scheme would work. What is the car finance scandal? The majority of new cars and some second-hand cars are bought via car finance deals where drivers pay an upfront deposit, borrow the rest from a lender and pay back the loan each month with interest. Each year some two million cars are purchased this way. However, many dealers and brokers were paid a behind-the scenes commission by lenders for signing buyers up to these agreements, which some drivers claimed they did not know. WHY WAS CAR FINANCE IN THE SUPREME COURT? In October, a ruling by the Court of Appeal deemed that these 'secret' commission payments without a consumers fully informed consent were unlawful. It considered the cases of three people with car finance deals, who argued they did not know about the commission made by their car dealers. Some lenders challenged that Court of Appeal decision so the case went to the Supreme Court. WHAT DID THE SUPREME COURT RULE? It ruled in favour of lenders instead of millions of consumers. Car finance firms did not unlawfully sell products by failing to disclose commissions. Supreme Court President Lord Reed said the court allowed the appeals brought by the finance companies. It did uphold one claim that a customer's relationship with the finance company was 'unfair' and that claimant will be awarded the amount of commission plus interest. Lord Reed then said 'other customers' claims are rejected'. It's a blow for motorists who did not know about the commission payments involved in their car finance deals. WILL ANYONE GET COMPENSATION? The FCA is consulting on setting up a redress scheme for those unknowingly signed up to a discretionary commission agreement (DCA) when they took out their car loans. In a DCA, lenders allow brokers and dealers to hike interest rates on car finance to increase their commission. These were banned in 2021 by the regulator. The watchdog has been probing DCAs since January 2024. Motorists must sit tight for six weeks as the FCA decides if it will set up a compensation scheme. This could cost lenders somewhere in the region of £5billion to £13billion, accountancy firm BDO says. WHAT DOES THE FCA SAY? The FCA says: Our detailed review of the past use of motor finance has shown that many firms were not complying with the law or our disclosure rules that were in force when they sold loans to consumers. Where consumers have lost out, they should be appropriately compensated in an orderly, consistent and efficient way. Some consumers have challenged their agreements with lenders through the courts. On Friday the Supreme Court ruled that in many cases commission payments could be legal, but a lender did act unfairly – and therefore unlawfully - due in part to the size of the commission it paid to the motor dealer and how it was disclosed. The Supreme Court agreed with several factors we had identified which could point towards an unfair relationship and fall foul of the Consumer Credit Act (CCA), whilst recognising it depends on the facts of each case. Such factors could include: the size of the commission relative to the charge for credit the nature of the commission, for example, whether it is discretionary the characteristics of the consumer compliance with regulatory rules the extent and manner of disclosure This clarity helps us because we have been looking at what is unfair and, prior to this judgment, there were different interpretations of the law coming from different courts. We will now consult on a redress scheme. Redress would depend on non-disclosure of the factors above and the interaction between them.
Reuters
5 minutes ago
- Reuters
UK's FCA proposes 9 billion to 18 billion pound redress scheme for motor finance claims
LONDON, Aug 3 (Reuters) - Britain's Financial Conduct Authority (FCA) on Sunday proposed a redress scheme for consumers with motor finance compensation claims following last week's Supreme Court ruling, estimating the cost at between 9 billion and 18 billion pounds ($12 billion and $24 billion). Friday's court decision had calmed the industry's worst fears about the size of the bill it would face over improperly disclosed commissions on car loans - a sum analysts had estimated could run to tens of billions of pounds. However, after considering that ruling, which was largely seen as a win for the banks, the FCA still proposed an industry-wide redress scheme for certain types of compensation claims. "At this stage, we think it is unlikely that the cost of any scheme, including administrative costs, would be materially lower than 9 billion pounds and it could be materially higher," the FCA said in a statement. It said the total cost was hard to estimate. It cautioned that any estimates were indicative and susceptible to change, but it said those in the middle of the 9 billion to 18 billion pounds range were "more plausible." Some level of further compensation payout had still been expected by banks after Friday's ruling, placing investor focus on the FCA's decision over whether to launch a full redress scheme, what it might look like, and how much it would cost. Lenders, including Lloyds Banking Group (LLOY.L), opens new tab, Close Brothers (CBRO.L), opens new tab, Barclays (BARC.L), opens new tab and the UK arms of Santander ( opens new tab and Bank of Ireland (BIRG.I), opens new tab, have already set aside nearly 2 billion pounds between them to cover potential motor finance compensation claims. The FCA said firms should now refresh estimates of their liabilities, increase provisions where necessary, and keep markets informed. Prior to the Supreme Court ruling, which overturned a previous court decision, there were fears the cost of redress could rival that of a payment protection insurance mis-selling scandal, which cost lenders over 40 billion pounds between 2011 and 2019. The proposed motor finance scheme would cover so-called discretionary commission arrangements - those where the broker could adjust the interest rate offered to a customer - if they had not been properly disclosed. The regulator said agreements dating back to 2007 should be considered and it would publish a consultation by early October, with an expectation that people start receiving compensation in 2026. "Our consultation will cover how firms should assess whether the relationship between the lender and borrower was unfair for the purposes of our scheme," the statement said. "Any redress scheme must be fair to consumers who have lost out and ensure the integrity of the motor finance market, so it works well for future consumers." The consultation will also look at how interest is calculated on compensation, saying it estimated a simple annual rate of around 3% would be applicable. The regulator said it had not decided whether the scheme should require customers to opt in, or be automatically involved unless they opt out. ($1 = 0.7531 pounds)
