Treasury intervenes in motor finance Supreme Court showdown

The government is to intervene in a Supreme Court case which has the potential to turn the motor financing market upside down, HM Treasury revealed today. 

The case to be heard in April follows three linked Court of Appeal judgments last October which found that certain commissions paid to car dealerships for arranging loans to be unlawful. The decision could open the way for thousands of customers to claim redress and commentators are talking about the possibility of a surge of claims on the same scale as PPI.

Chancellor Rachel Reeves has taken the unusual step of sanctioning the government to make representations when the Supreme Court hears the appeal from motor finance companies. The Gazette understands that the government is concerned that the CoA ruling could damage the motor finance industry and the wider City. The Treasury cites figures from ratings agency Moody’s that consumer claims could top £30bn.

Treasury lawyers are expected to stress the potential implications of the judgment on the wider economy and argue that the court has not taken into account the role of the Financial Conduct Authority in ensuring fairness for consumers. The key submission is likely to be that the uncertainty caused by refusing the appeal could undermine the competitiveness of the UK by creating a redress system disproportionate to any detriment incurred by motorists.

An HM Treasury spokesperson said: ‘We want to see a fair and proportionate judgement that ensures compensation to consumers that is proportionate to the losses they have suffered, and allows the motor finance sector to continue playing its role in supporting millions of motorists to own vehicles.’

In the year to September 2024 more than two million cars were bought on finance. Over seven million such finance agreements are outstanding. The motor finance market is particularly important in supporting purchases of new cars, with approximately 80% of new vehicles bought on finance.

In their joint ruling, Lady Justice Andrews October, Lord Justice Birss and Lord Justice Edis said it would not suffice for lenders to ‘bury’ a statement about the terms and conditions of credit agreements in the small print. Informed consent, it was found, required the consumer to be told all material facts, including the amount of the commission and how it was to be calculated – and a failure to do so should allow for redress to be claimed.

The FCA has asked the Supreme Court to consider the potential impact of any judgment on the market and the consumers who rely on it.

Claimant lawyers say the potential surge in claims could cost lenders up to £24bn, with claims management companies and law firms standing to receive up to 50% of compensation payouts. Firms have amassed thousands of potential claimants and the growing volume has attracted private equity investors who see an opportunity for substantial returns.