In London on January 21, British finance minister Rachel Reeves is seeking to intervene in a significant case of car loan mis-selling to protect the motor finance industry from a potential multi-billion pound payout to consumers.
The UK Treasury is concerned that a court ruling from October, if upheld on appeal, could make it difficult for consumers to obtain car loans. Approximately 80% of new vehicles in the UK are financed.
The Treasury announced on Tuesday that it would raise its objections during an upcoming Supreme Court appeal initiated by lenders against a previous Court of Appeal decision deeming it unlawful for car dealers to receive commissions from banks providing motor finance without obtaining the customer's informed consent.
Following reports on the Treasury's intervention, shares in Close Brothers and Lloyds surged, with Close rising 20% and Lloyds gaining 4.3%.
Expressing the Treasury's stance, a spokesperson stated, "We aim for a fair and balanced ruling that ensures consumers receive compensation commensurate with their losses, while enabling the motor finance industry to continue supporting millions of motorists in vehicle ownership."
Industry analysts had previously estimated that banks could face a £16 billion ($21 billion) compensation obligation, marking one of the sector's costliest episodes of consumer compliance failures.
The Treasury will argue that the judgment's ambiguity might erode trust in UK financial regulation.
Jefferies analysts highlighted concerns in a statement, "It would reflect poorly on the UK if lenders who abided by statutory laws and regulatory disclosure rules could face retroactive responsibilities."
Banco Santander's UK division had allocated £364 million to address potential expenses related to car finance lender practices.
Additionally, Lloyds earmarked a £450 million provision for potential redress measures.
($1 = 0.8116 pounds)