Reeves intervened in the UK car finance mis-selling case to protect creditors

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Chancellor Rachel Reeves on Monday launched a bid to protect car loan providers from multi-billion pound payments. After the Treasury warned that Britain’s reputation as a business destination could be damaged.

The Treasury has taken the unusual step of seeking permission to intervene in an upcoming Supreme Court case amid fears that banks and other creditors could be forced to pay tens of billions of pounds in compensation.

Reeves fears the issue could cause chaos in the motor finance and auto industry, making it harder for consumers to get credit. 80% of new vehicles in the UK are bought with cash.

If the Treasury is successful, it will hurt consumer groups and claims management companies that have been encouraging car finance customers to take their complaints to the Financial Ombudsman.

The chancellor, who tried to pull investment in Britain at the World Economic Forum in Davos this week, said the high fees would have a chilling effect on the banking sector, slow growth and damage the country’s pro-business reputation.

It is Santander Reconsidering its presence in the UKAccording to people familiar with the matter, the hedged business generates lower returns than other markets. In November it set aside £295mn to cover the costs of mis-sold car loans.

In April, the Supreme Court is set to hear an appeal by car loan providers. In opposition to the October decision of the Court of Appeal Alongside consumers complaining about “secret” commissions on car loans.

The ruling that it is illegal for banks to pay car dealership commissions without the customer’s consent has sent shockwaves through the UK banking system and resulted in thousands of pounds in compensation from lenders Firststrand Bank and Close Brothers.

Analysts at HSBC estimated the total cost of compensation could reach £44bn, echoing the £50bn paid out by banks after the mis-selling of payment protection insurance.

In a submission to the Supreme Court, seen by the Financial Times, the Treasury said the case had “potential to cause significant economic damage and affect the availability and cost of motor finance to consumers”.

The Treasury filing said the case “may give the impression that regulation in the UK is uncertain”. Last week, Reeves They are called in controllers To push them to drop laws that hinder growth.

It also argues that if liability is established, the Treasury will want to convince the Supreme Court that “any remedy is proportionate to the loss to the consumer and avoids windfall.”

Treasury experts say the government wants the financial sector to be viable for both new and second-hand car purchases, rather than siding with banks for aggrieved consumers.

A Reeves partner said: “If creditors break the law, consumers should be compensated commensurate with their losses.”

“However, the chancellor fears that the ruling will use a sledgehammer to crack a nut. This is bad for consumers and bad for the industry.

A jury, including Supreme Court President Lord Reid and his deputy Lord Hodge, is due to hear the landmark case in early April.

In the year The Supreme Court, which replaced the House of Lords Appellate Committee as the UK’s highest court in 2009, allows official bodies to apply to intervene in hearing cases.

Permission is granted only if the court considers that the intervention would provide “substantial assistance” to the judges hearing the case.

The action of the Treasury will be accepted by the creditors of England Talk to the government To warn of possible disruption in the consumer credit sector. One part of the discussion focused on whether the government could enact new legislation, a person familiar with the debate said.

Charlie Nunn, chief executive of Lloyds, has in the past. They asked the government to intervene. He warned that the October court decision has increased the “investment problem” for the United Kingdom.