The still-ongoing attack on point-of-sale car and motorcycle loan provision by consumer groups and rapacious claims management companies briefly attracted unusual input from Chancellor of the Exchequer Rachel Reeves, but this has since foundered.
As BDN has previously reported, motor finance stability hit the buffers last October, when a Court of Appeal decision said it was unlawful for lenders to give “secret” commissions to dealers which had been undisclosed to borrowers and paid without their consent. This threw the whole sector into confusion and could potentially, in a worst-case scenario, undermine access to loans for vehicle purchases.
This judgement sent shock waves through the banking system and has already triggered some substantial compensation pay-outs. A wide range of lenders, including Lloyds’ Black Horse Motor Finance, Close Brothers, Moto Novo, FirstRand and Santander are involved and have set aside large amounts to cover cost risks. Spanish-owned Santander, the Consumer Finance division of which recently became primary UK retail finance partner for Triumph Motorcycles, is even reconsidering its entire British-market presence.
The next episode moves to the Supreme Court for adjudication in April, on a challenge to the October Court of Appeal ruling, when lenders will find out whether they could be bitten for billions in compensation relating to historic mis-sold loan agreements – which they thought were legal at the time. Reeves got her knickers in a twist about such deleterious consequences and so the Treasury sought permission to intervene at Supreme Court level.
According to the Financial Times, the Treasury’s submission said the case has “potential to cause considerable economic harm and could impact the availability and cost of motor finance for consumers”. It also argued that, if liability was established, then the Treasury would try to persuade the Supreme Court that “any remedy should be proportionate to the loss actually suffered by the consumer and avoid conferring a windfall”.
The stakes are certainly enormous if things go wrong and, without a satisfactory Supreme Court resolution, claims companies are allowed to run amok. HSBC analysts have estimated the total cost of compensation might reach £44bn. A spokesperson for Rachel Reeves reportedly said: “The Chancellor is concerned the judgement risks using a sledgehammer to crack a nut.” And as for vital point-of-sale credit for new and used car or bike acquisition, the resultant turmoil could make it a total write-off.
Unfortunately for Reeves, though, her intervention didn’t get far. A five-member panel of judges, including Supreme Court president Lord John Reed, has now decided to prevent the government from stepping in. They declined to give reasons for their refusal.
A Treasury response said: “We respect the Court’s decision not to grant our application to intervene in the case and will monitor it closely.” Officials added that the Supreme Court had limited time and preferred to keep the number of interventions to a minimum for efficiency and would generally refuse permission where arguments had already been made by other parties. So the banks are still well and truly in the dock.