Rachel Reeves joins a non-car loan lawsuit to protect lenders

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Chancellor Rachel Reeves on Monday launched a proposal to protect car loan providers from billions of pounds in fines in a landmark mis-selling case, after the Treasury warned it could damage the reputation of Britain as a place to do business.

The Treasury has taken the unusual step of seeking permission to intervene in an upcoming Supreme Court case, amid concerns that banks and other lenders could face millions in compensation. thousands of pounds.

Reeves fears the case could cause chaos in the auto finance industry, making it harder for consumers to get loans. Around 80 per cent of new cars in the UK are bought on finance.

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

The chancellor, who is at the World Economic Forum in Davos this week trying to drum up investment in Britain, fears that the potential high wages will have a chilling effect on the banking sector, stifling growth and ruining national reputation that supports business.

Santander is considering its presence in the UKaccording to people familiar with the matter, as it struggles with low profits in its business surrounded by other markets. In November it set aside £295mn to cover potential costs of mis-sold car loans.

In April the Supreme Court is due to hear an appeal brought by car loan providers challenging the October ruling from the Court of Appeals which stood with consumers who complained about “secret” commissions on auto loans.

The ruling that it was illegal for banks to pay commission to a car dealer without the customer’s consent shocked the UK banking system and resulted in thousands of pounds in compensation payments from lenders FirstRand Bank and Close Brothers.

HSBC analysts have estimated that the total cost of compensation could reach £44bn, to match the £50bn paid by banks after being embarrassed by the mis-selling of payment protection insurance.

In a Supreme Court announcement, seen by the Financial Times, the Treasury said the case had “the potential to cause significant economic harm and could affect the availability and cost of car finance for consumers”.

The Treasury’s application said the case could “give rise to the impression that UK law is uncertain”. Last week Reeves called by authorities pushing them to sweep away laws that hinder growth.

It also argues that if the debt is established, the Treasury will seek to persuade the Supreme Court that “any remedy should be proportionate to the loss actually suffered by the consumer and avoid giving breath”.

Treasury insiders argue that instead of taking sides with the banks against delinquent consumers, the government wants to keep the financial sector operating, which is essential for buying new cars. and old ones.

“If the lenders broke the law, consumers should receive compensation commensurate with the losses they suffered,” said a friend of Reeves.

However, the Chancellor is concerned that the judgment is at risk of using a sledgehammer to crack nuts. That would be bad for consumers and bad for the industry. ”

Judges including Lord Reed, president of the Supreme Court, and his deputy Lord Hodge are due to hear the landmark case in early April.

The Supreme Court, which replaced the House of Lords appeals committee as the UK’s highest court in 2009, allows official bodies to apply to intervene in cases it hears.

Permission is granted only if the court thinks that the intervention will provide “substantial assistance” to the judges who will hear the case.

The Treasury’s move will be welcomed by UK lenders, who are holding fast negotiations with the government warning of potential turmoil in the consumer credit sector. Part of the discussion focuses on the possibility of the government introducing new legislation, said a person familiar with the discussions.

Lloyds chief executive Charlie Nunn also attended He asked the government to intervene as he warned that the October court ruling had sparked a “financial crisis” for the UK.