The Supreme Court has rejected Chancellor Rachel Reeves’ attempt to intervene in a landmark case concerning hidden commissions in car finance, dealing a blow to lenders facing a compensation bill potentially running into billions.
Reeves had urged the court to prevent what she described as “windfall” payouts to borrowers who were unknowingly charged additional fees due to secret commission arrangements between lenders and car dealers. However, judges dismissed the chancellor’s application, filed in January, in a ruling that rattled financial markets.
Shares of motor finance lenders, which had surged following the Treasury’s intervention, fell sharply on Monday. Lloyds and Close Brothers, two of the UK’s largest car loan providers, saw their stock drop by 3.8% and 8.5%, respectively.
Reeves’ intervention came after pressure from motor finance providers, who argued that massive compensation payouts could destabilise the sector, leading to reduced loan availability or higher interest rates. The chancellor, however, denied accusations of yielding to financial industry lobbying or acting against consumer interests.
“There is nothing pro-consumer about making it harder for people to buy an affordable car for their family. That would be bad for working families,” Reeves said last month at the World Economic Forum in Davos, Switzerland.
The car finance scandal has drawn comparisons to the infamous payment protection insurance (PPI) mis-selling crisis, with analysts warning that the final cost to lenders could reach £44bn.
The controversy erupted after an October Court of Appeal ruling dramatically expanded a Financial Conduct Authority (FCA) investigation into car finance commissions. The court found that car dealers receiving undisclosed commissions for arranging loans had engaged in unlawful practices.
Lenders including Close Brothers and FirstRand are now seeking to overturn that ruling in a Supreme Court hearing scheduled for 1-3 April.
Gary Greenwood, a banking analyst at Shore Capital, said the Supreme Court’s rejection of the Treasury’s intervention was “a disappointment to the market.” In spite of the case’s outcome remaining uncertain, he said: “We hope that a common-sense ruling can eventually be reached that punishes those that deserve to be punished while sparing those that do not.”
The Supreme Court also dismissed separate intervention attempts by the consumer campaign group Consumer Voice and the Financing and Leasing Association (FLA) representing car finance firms. However, the FCA has been granted permission to participate, along with the National Franchised Dealers Association (NFDA), which represents car dealerships.
In a joint article published last week, solicitors Esmaeil Momeni and Ovye Affi said: ‘The ethical implications of the government’s “intervention” appears questionable. Is it morally justifiable for the government to urge the UKSC to prioritise the interests of the car finance market and the economy over the interests of individual citizens in private proceedings between financial institutions and individual members of the public?
‘By attempting to protect the lending companies through its intervention and calling on the UKSC to consider extrajudicial factors in determining the appeal, the government is betraying the trust placed on it by the electorate who voted it into power.’
Sue Robinson, NFDA chief executive, commenting on the decision said: “NFDA has obtained permission from the UK Supreme Court to intervene, and to make both written and oral submissions, in the Supreme Court appeal against the decision on motor finance commission in Johnson v FirstRand Bank Limited, Wrench v FirstRand Bank Limited and Hopcraft v Close Brothers.
“We have secured the services of Caytons, A Gallagher Bassett Company, Jonathan Kirk KC and Richard Roberts both from Gough Square Chambers to represent NFDA in those proceedings, which are listed for hearing between 1-3 April 2025. NFDA, as the representative of the consumer facing part of the sector, understands the needs of UK consumers.”
Meanwhile Consumer Voice co-founder Alex Neill expressed frustration over the court’s decision to reject her organisation’s intervention. “An overwhelming majority of car finance customers have told us they are concerned about dealers being paid commission. People trust their car dealer to act in their best interests when arranging finance. Yet, this trust is clearly being abused by some dealers in the market.”
Until the Supreme Court case decision is issued, the motor finance sector faces continued uncertainty over potential compensation liabilities and the broader implications for consumer lending.