Lloyds and Close Brothers shares surge after Reeves steps in on car finance case

Motor finance giants Lloyds and Close Brothers’ share prices rocketed on Tuesday after Chancellor Rachel Reeves sought to intervene in a court hearing over the potential mis-selling of car loans.

The Supreme Court will hear a case in April where it will decide whether to uphold a landmark ruling on hidden motor finance commission arrangements, made in October.

Such a decision could eventually lead to car finance firms paying out as much as £30 billion in combined compensation to consumers.

But the Treasury submitted an application to the Supreme Court this week, arguing it should be able to give evidence in the upcoming case.

The submission argued that the case could damage the industry and make it more difficult and expensive to take out car finance loans.

It also said it could “generate a perception that regulation in the UK is uncertain”.

The letter which was first reported by the Financial Times also warned that “any remedy should be proportionate to the loss actually suffered by the consumer and avoid conferring a windfall”.

Lloyds and Close Brothers, two other the biggest players in the sector, saw their share prices rise 4% and 21% on Tuesday, respectively.

The Supreme Court will rule on an October judgment made in the Court of Appeal that said it was unlawful for car dealers to gain commission from lenders without receiving the customer’s fully informed consent to the payment.

It means that customers should have been clearly told how much commission dealers would earn, and agree to it.

The decision opened the floodgates to a potential fresh wave of complaints from motorists who think they may have been mis-sold car finance in previous years.

While the industry waits for the judgment, the Financial Conduct Authority (FCA) is separately investigating whether there was widespread misconduct in the motor finance market and, if so, how affected consumers should be compensated.

Lawyers for those who could be in line for compensation payments criticised the intervention.

Elizabeth Comley, chief operating officer of the law firm Slater and Gordon, said her firm represents “tens of thousands of individuals who have been unfairly impacted” by car finance sellers’ practices.

She said: “While we recognise the importance of maintaining confidence in British lenders, this cannot come at the expense of justice for the individuals affected.

“Consumers deserve accountability and redress when they have been wronged, and Rachel Reeves’ attempts to shield lenders from the consequences of their actions risk undermining public trust in the financial sector as a whole.”

It comes after Ms Reeves has pushed regulators to cut red tape in a bid to support economic growth and make the UK financial services sector more competitive.

A Treasury spokesperson said: “We want to see a fair and proportionate judgment 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.”