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The UK Supreme Court has rejected an attempt by Chancellor Rachel Reeves to intervene in a landmark case on car loan mis-selling, sending shares in lenders Close Brothers and Lloyds Banking Group sharply lower, Reuters reported.
The Treasury had sought to make representations in the case when it is heard in April, warning that an October Court of Appeal ruling, if upheld, could make it more difficult for consumers to access car loans. The government had argued that any consumer redress should be proportionate to actual losses suffered.
The Supreme Court accepted an intervention from the Financial Conduct Authority (FCA) and the National Franchised Dealers Association (NFDA), but denied applications from the Treasury, the Finance and Leasing Association (FLA), and the consumer lobbying group Consumer Voice, a court spokesperson said. No reason was provided for the refusal.
The Court may reject petitions if it believes others, such as the FCA and the NFDA, will make similar representations.
The case stems from a regulatory investigation into historic commission practices in motor finance, which the Court of Appeal found to have been "hidden" from consumers. Analysts say the dispute could become one of the UK's most costly consumer banking scandals.
Lloyds, one of the largest providers of motor finance, has set aside £450 million ($589 million) to cover potential redress, while Close Brothers last week allocated up to £165 million. Bloomberg reported that analysts at Bank of America estimate total industry costs could reach £38 billion, with Lloyds alone potentially liable for £3 billion.
Shore Capital said the Supreme Court’s decision to reject the Treasury’s intervention request would be a "disappointment to the market." Lloyds shares fell as much as 4% following the news, while Close Brothers dropped 15%.
The Treasury, citing a report from ratings agency Moody’s, previously warned that consumer claims could exceed £30 billion, with significant economic implications for the motor finance sector. Last month, the government argued that the case could cause economic harm and limit the availability of car loans in the UK. The Treasury did not immediately comment following the Supreme Court's decision.
The FCA, which is investigating the industry’s historic sales practices, is expected to play a key role in any future compensation scheme. "To the extent that the FCA is likely to be involved in any future redress programme, this may be seen as a positive, particularly if the FCA was to share a similar view to HMT with regard to how potential future redress should be calculated," Gary Greenwood, an analyst at Shore Capital, wrote in a note, reported by Bloomberg. "Ultimately, the situation and potential outcome remains subject to significant uncertainty."