Supreme Court Rejects Chancellor’s Appeal in Motor Finance Commission Case
Rachel Reeves’ attempt to intervene in a significant legal battle over car loan commissions is denied, impacting lender shares and raising concerns over potential compensation costs.
The UK Supreme Court has dismissed an application from Chancellor Rachel Reeves to intervene in a pivotal case concerning car loan commissions, a decision announced on Monday.
This ruling is significant as it pertains to a potential £44 billion liability for lenders involved in the car finance sector regarding alleged undisclosed commission payments to dealers.
Reeves had sought to prevent any 'windfall' compensation for borrowers who may have been impacted by these commission payouts, which a court of appeal previously ruled unlawful in October.
The Supreme Court's decision has repercussions for the market, as it comes amid heightened scrutiny of car finance practices and potential regulatory changes.
Following the announcement, shares of major lenders, including Lloyds and Close Brothers, experienced declines of 3.8% and 8.5%, respectively.
This came after a brief period of optimism spurred by the Treasury’s actions to potentially mitigate the financial fallout from the scandal.
The intervention attempt by Reeves was not only controversial but also followed considerable lobbying from the financial sector, which warned that substantial compensation claims could lead to significant disruptions in the motor finance market.
The Chancellor, however, rejected allegations of succumbing to the interests of lenders, emphasizing that her goal was to facilitate affordable car ownership for families.
“The situation raises concerns not only for the finance providers but also for consumers,” stated Reeves at the World Economic Forum in Davos last month.
She further remarked that creating barriers to affordable car purchases would adversely impact working families.
Consumer advocacy groups have expressed worries that settlements related to the commission inquiries may resemble the previous mis-selling epidemic of payment protection insurance (PPI), potentially culminating in payouts that could jeopardize the viability of lending institutions.
The Financial Conduct Authority (FCA) has been at the center of the investigations and continues to play an active role in the legal proceedings.
Close Brothers and FirstRand have indicated plans to contest the appeal ruling at the Supreme Court, scheduled for a hearing from April 1 to April 3, 2024. Gary Greenwood, a banking analyst at Shore Capital, remarked that the Supreme Court’s decision is likely to bring disappointment to the markets, underscoring the ongoing uncertainty surrounding the regulatory environment.
In addition to Reeves' application, the Supreme Court also declined interventions from the consumer advocacy group Consumer Voice and the Financing and Leasing Association (FLA), which represents a wide array of car finance providers, including major banks and automobile manufacturers.
However, the FCA and the National Franchised Dealers Association (NFDA) were granted permission to participate in the proceedings.
Following the ruling, Alex Neill, co-founder of Consumer Voice, expressed concerns over the implications for car finance consumers, emphasizing the need for trust between customers and dealerships.
The legal landscape surrounding motor finance commissions remains complex, with ongoing developments expected to impact both the lending market and consumer protection measures.
This ruling is significant as it pertains to a potential £44 billion liability for lenders involved in the car finance sector regarding alleged undisclosed commission payments to dealers.
Reeves had sought to prevent any 'windfall' compensation for borrowers who may have been impacted by these commission payouts, which a court of appeal previously ruled unlawful in October.
The Supreme Court's decision has repercussions for the market, as it comes amid heightened scrutiny of car finance practices and potential regulatory changes.
Following the announcement, shares of major lenders, including Lloyds and Close Brothers, experienced declines of 3.8% and 8.5%, respectively.
This came after a brief period of optimism spurred by the Treasury’s actions to potentially mitigate the financial fallout from the scandal.
The intervention attempt by Reeves was not only controversial but also followed considerable lobbying from the financial sector, which warned that substantial compensation claims could lead to significant disruptions in the motor finance market.
The Chancellor, however, rejected allegations of succumbing to the interests of lenders, emphasizing that her goal was to facilitate affordable car ownership for families.
“The situation raises concerns not only for the finance providers but also for consumers,” stated Reeves at the World Economic Forum in Davos last month.
She further remarked that creating barriers to affordable car purchases would adversely impact working families.
Consumer advocacy groups have expressed worries that settlements related to the commission inquiries may resemble the previous mis-selling epidemic of payment protection insurance (PPI), potentially culminating in payouts that could jeopardize the viability of lending institutions.
The Financial Conduct Authority (FCA) has been at the center of the investigations and continues to play an active role in the legal proceedings.
Close Brothers and FirstRand have indicated plans to contest the appeal ruling at the Supreme Court, scheduled for a hearing from April 1 to April 3, 2024. Gary Greenwood, a banking analyst at Shore Capital, remarked that the Supreme Court’s decision is likely to bring disappointment to the markets, underscoring the ongoing uncertainty surrounding the regulatory environment.
In addition to Reeves' application, the Supreme Court also declined interventions from the consumer advocacy group Consumer Voice and the Financing and Leasing Association (FLA), which represents a wide array of car finance providers, including major banks and automobile manufacturers.
However, the FCA and the National Franchised Dealers Association (NFDA) were granted permission to participate in the proceedings.
Following the ruling, Alex Neill, co-founder of Consumer Voice, expressed concerns over the implications for car finance consumers, emphasizing the need for trust between customers and dealerships.
The legal landscape surrounding motor finance commissions remains complex, with ongoing developments expected to impact both the lending market and consumer protection measures.
