Motor finance: ‘Nothing is certain’ as banks await historic ruling

The Supreme Court will hand down what could be the “most consequential ruling for lenders” in recent history on Friday in the dramatic culmination of the motor finance saga.

In a twist, the highest court in the land surprised the market last Friday evening after updating its system with the information that it will announce the verdict at 4:35pm this Friday.

The scheduled time marks the first day of the court’s Summer recess and will come less than an hour after markets close for the weekend, in signs there are concerns the ruling could have a major market impact 

Jefferies analysts Jonathan Pierce and Priya Rathod said there was “no example of a Supreme Court judgment handed down after market hours, or on the first day of Summer recess”. 

Analysts pegged the unprecedented nature to a “desire to avoid disorderly trading and give interested parties the weekend to digest and respond”.

The court will determine whether to overturn a shocking Court of Appeal ruling in October, which found it unlawful for banks to pay a commission to a car dealer without the customer’s informed consent. 

The case in front of the Justices centers on Close Brothers and FirstRand Bank but Lloyds, Barclays, Santander, as well as the Treasury and Financial Conduct Authority are among those caught in the saga. 

The City regulator has pledged to confirm a redress scheme within six weeks of the verdict but the hand of Chancellor Rachel Reeves casts over the implications for lenders.

While in the background, after losing a court battle in December to challenge a decision by the Financial Ombudsman regarding motor finance, Barclays was back in June seeking to appeal.

Reeves backs the banks 

Reeves, who has turned to banks for aid with economic growth and crisis tariff talks, has voiced concern that a ruling may trigger a withdrawal of companies from the sector and prevent customers accessing credit to buy cars.

The Supreme Court dismissed the Treasury’s controversial intervention in the motor finance showdown in February, sending bank stocks tumbling. Lloyds fell over four per cent and Vanquis and Secure Trust lost ten and eight per cent.

But new reports have revealed the Treasury is mulling options to overrule the Supreme Court should an adverse ruling be handed to the lenders with officials conducting meetings with the Ministry of Justice and the Department of Business and Trade. 

Tom Webley, partner at law firm Reed Smith told Morning Wire, “looking to change the law retrospectively to neuter the impact of a decision of the highest court in the land, while not without precedent, would be extremely controversial”.

“It would be seen by many as the thin end of the wedge; a chipping away of the separation of powers between legislators and judiciary,” he added.

Fresh legislation could help give the Treasury the final word on the disclosure of commission arrangements to borrowers and skirt any drastic impact across the sector.

Banking stocks have reacted with volatility to motor finance updates with lenders taking a bruising since the October ruling. Close Brothers, which depends on motor finance for around a fifth of its lending, crashed to lows of 185.00 in the aftermath of the judgment. 

The firm has since clawed back losses trading over 400p after rising 73 per cent since January 2025. But this remains down over 20 per cent when compared to prior the Court of Appeal’s verdict.

Jefferies analysts said: “It is the detail that matters and having the weekend to digest that is no bad thing, in our view”. 

Regulators in the driving seat

The Supreme Court has to look at four separate legal issues in order to determine whether lenders were liable under the law. 

RBC legal analyst Julius Grower anticipated “that the court will find that the banks were liable under statute, focussing on egregious discretionary commissions, but will clear them of liability in equity and under tort”.

Analysts Benjamin Toms and Pablo de la Cuevas said liability under statute would be “an ideal way for the Supreme Court to hand this issue back to the FCA to set up a softer general redress scheme”.

Should this be the case, the analysts projected Lloyds would be on the hook for an extra £400m than the £1.2bn already in provision. 

Meanwhile, Santander could climb to £800m from £300m. Close Brothers’ £165m is expected to suffice. 

The base case for the total sector impact would be near £11bn, which would curb the highs of £30bn previously feared by lenders, regulators and the Treasury.

Jefferies analysts said: “We doubt everything will go the industry’s way. But we continue to believe lenders, in general, will avoid a widespread liability for partial disclosure”.

But they cautioned “aspects of the ruling are likely to be unfavourable for lenders”.

They added: “To be clear, we are nervous. This is not normal territory and nothing is certain.” 

Whilst the Supreme Court will end the industry’s nerves as it delivers the final judgment, attention will quickly turn to the FCA who will begin the next chapter of the motor finance tale.