Reeves wades in to motor finance scandal in bid to soften £30bn payout
Shares in some of Britain’s biggest motor finance lenders have surged today after the Chancellor Rachel Reeves revealed plans to intervene in a mis-selling scandal which could cost the industry billions of pounds.
A court judgement handed down in October sent shockwaves through the motor finance sector and has opened the door to what analysts say could be a £30bn redress payout.
Lenders have lodged an appeal against the ruling set to be heard by the Supreme Court in April.
However, the Chancellor has now waded into the debate to express concerns over the judgement, warning the ruling may trigger a withdrawal of companies from the sector and prevent customers accessing credit to buy cars.
“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,” a Treasury spokesperson said today.
The court had ruled it was unlawful for car dealers to receive a commission from banks providing motor finance without obtaining the customer’s informed consent.
However, central to the Treasury’s intervention are concerns that the potential redress scheme may not be proportionate to the damage inflicted on customers.
A huge payout could also lead to lenders ditching motor finance altogether, which still props up about 80 per cent of the new car market.
The mis-selling scandal has triggered a crisis of confidence in lenders and wiped billions from the value of companies like Lloyds and Close Brothers.
Close Brothers has shed more than 50 per cent of its value since the FCA announced its first probe into the market last year. Shares in the firm rocketed more than 20 per cent this morning on news of the Chancellor’s intervention, first reported by the Financial Times.
Lloyds shares are also trading up around 3.3 per cent.
Bosses across the City have expressed concern over the knock-on impact of the probe in recent months.
Speaking with MPs, Andy Briggs, the boss of FTSE 100 pensions firm Phoenix, said he was peppered with questions about the scandal by US investors last year despite not operating in the motor finance industry.