Open Editor's Digest for free
Rula Khalaf, editor of the Financial Times, picks her favorite stories in this weekly newsletter.
British Chancellor Rachel Reeves on Monday launched a bid to protect car loan providers from multibillion-pound payouts in a landmark mis-selling case, after the Treasury warned it could damage Britain's reputation as a place to do business.
The Treasury has taken the unusual step of seeking permission to intervene in an upcoming High Court case, amid fears that banks and other lenders could face a damages bill costing tens of billions of pounds.
Reeves fears the issue will cause chaos in auto financing and the auto industry, making it difficult for consumers to obtain loans. About 80 per cent of new cars in the UK are purchased on finance.
If the Treasury succeeds, it will deal a blow to consumer groups and claims management companies that have been encouraging car finance customers to make complaints to the Financial Ombudsman.
The Chancellor, who is attending the World Economic Forum in Davos this week in a bid to drum up investment in Britain, fears the potentially huge payments would have a chilling effect on the banking sector, hindering growth and damaging the country's pro-business reputation.
Santander is Reconsider its presence in the UKaccording to people familiar with the matter, as it faces lower returns on its protected businesses compared to other markets. In November, it set aside £295m to cover the potential costs of mis-sold car loans.
The Supreme Court is due to hear the appeal brought by car loan providers in April Appealing a ruling issued by the Court of Appeal in October This sided with consumers who complained about “secret” commissions on car loans.
A ruling that it is illegal for banks to pay a commission to a car dealer without a customer's informed consent has shocked the UK banking system and prompted thousands of pounds in damages from lenders FirstRand Bank and Close Brothers.
HSBC analysts estimate that the total cost of compensation could reach £44bn, which reflects the £50bn paid out by banks after the payment protection insurance mis-selling scandal.
In a memorandum submitted to the Supreme Court, and seen by the Financial Times, the Treasury claims the case “is likely to cause significant economic harm and could impact the availability and cost of car financing for consumers.”
The Treasury submission said the case may “create a perception that regulation in the UK is uncertain.” Reeves last week He called the organizers To push them to remove rules that hinder growth.
It also argues that if liability were proven, the Treasury would seek to persuade the High Court that “any remedy must be proportionate to the loss actually suffered by the consumer and avoid a windfall.”
Treasury insiders say that rather than siding with banks against aggrieved consumers, the government wants to preserve the viability of the financial sector vital for new and used car purchases.
“If lenders violate the law, consumers should receive compensation proportionate to the losses they suffer,” said one Reeves ally.
“However, the Chancellor is concerned that the ruling carries the risk of using a sledgehammer to crack a nut. That would be bad for consumers and bad for the industry.”
The judges, including Lord Reed, Chief Justice of the Supreme Court, and his deputy, Lord Hodge, are scheduled to hear the landmark case at the beginning of April.
The Supreme Court, which replaced the House of Lords Appeal Committee as the UK's highest court in 2009, allows official bodies to apply to intervene in cases it hears.
Permission is only granted if the court believes 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, which consider it urgent Talks with the government To warn of possible disruptions in the consumer credit sector. A person familiar with the discussions said that part of the discussions focused on the possibility of the government introducing new legislation.
Lloyd's CEO Charlie Nunn has done so before He called on the government to intervene He also warned that the October court ruling had raised an “investment capacity problem” in the UK.
