Chancellor Rachel Reeves has denied that the Labour government is working against consumer interests despite urging the supreme court to avoid handing a “windfall” to borrowers harmed in the motor finance commission scandal.
Reeves has been under pressure from lenders and lobby groups, who have warned that a massive compensation bill – expected to rival the payment protection insurance (PPI) mis-selling saga at £44bn – could disrupt the motor finance market. They warn it could force some lenders to shut up shop, offer fewer loans or hike interest rates to cover their costs.
The Treasury has since bid to intervene in the case – alongside lobby groups for motor lenders and car dealerships – and warned judges to “avoid conferring a windfall” if they rule in consumers’ favour.
Challenged on whether the Treasury had caved into lobbying by the finance sector in deciding to wade into the case, the chancellor said, “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.
“I think we’ve got to get the balance right, and I think sometimes the balance has not been right in recent years. And I think having a vibrant car industry and motor finance industry in the UK is important,” she told reporters on the sidelines of the World Economic Forum in Davos, Switzerland.
About 80% of new vehicles in the UK are bought on finance, with the industry having lent £16.9bn to UK car owners last year.
When it was pointed out that some consumers stand to be compensated, Reeves said any payouts should be, “proportionate to any harm done”.
A number of public and private bodies are bidding to intervene in the landmark case, including the Financial Conduct Authority (FCA) and the Financing and Leasing Association lobby group, which represents car lenders ranging from large high street banks such as Barclays to the finance arms of manufacturers such as Ford and Volkswagen.
The National Franchised Dealers Association (NFDA), which represents car dealerships, has also applied to intervene, according to documents seen by the Guardian. The NFDA confirmed it had made a submission but declined to comment further.
Customer campaign group Consumer Voice has also made an application via legal claims firm Courmacs.
It follows a court judgment in October, which vastly expanded an ongoing FCA investigation into motor finance commissions and sent compensation estimates soaring.
The landmark ruling determined that paying a “secret” commission to the car dealers who had arranged the loans without disclosing the sum and terms of that commission to borrowers was unlawful.
Barring the case being overturned at the supreme court in April, lenders including Lloyds, Santander and Close Brothers could face a combined bill of up to £44bn, according to analysts at HSBC.
Speaking to the House of Lords financial services regulation committee on Wednesday, FCA chief executive Nikhil Rathi admitted that there was a risk that the court ruling could end up affecting other types of lending beyond car finance, such as commissions paid on the sale of insurance plans.
He said it was a “potential issue” that the FCA planned to highlight if is granted permission to intervene.
