In a significant development for the UK's motor finance industry, the Supreme Court has denied Chancellor Rachel Reeves' request to intervene in an upcoming appeal concerning undisclosed commissions in car finance agreements. The court, however, has permitted the Financial Conduct Authority (FCA) to participate in the proceedings scheduled for April 1-3, 2025.

The Supreme Court's decision underscores the judiciary's commitment to maintaining impartiality in the appeal process. This development has significant implications for the motor finance industry, with major lenders like Lloyds Banking Group and Close Brothers bracing for potential liabilities amounting to billions of pounds.

In October 2024, the UK Court of Appeal ruled that car dealers unlawfully received undisclosed commissions for arranging finance agreements, potentially leading to significant compensation claims against lenders. This ruling has profound implications for the motor finance industry, as it could result in compensation payouts comparable to the Payment Protection Insurance (PPI) mis-selling scandal, which cost banks over £50 billion.

In January 2025, Chancellor Rachel Reeves sought to intervene in the Supreme Court appeal, expressing concerns that substantial compensation payouts could destabilize the motor finance sector and limit consumer access to car loans. The Treasury argued that any customer redress should be proportionate to the losses suffered by consumers.

On February 17, 2025, the UK Supreme Court rejected the Treasury's application to intervene but granted the Financial Conduct Authority (FCA) permission to participate. The court did not provide specific reasons for denying the Treasury's request.

In anticipation of potential compensation liabilities, lenders have set aside substantial funds. Lloyds Banking Group has reserved £450 million, while Close Brothers has allocated up to £165 million.

Following the Supreme Court's rejection of the Treasury's intervention, shares in Close Brothers fell by 6.8%, and Lloyds Banking Group's shares declined by 2.7%.

Some lenders, such as Close Brothers, have temporarily paused issuing new car loans to assess the impact of the ruling. Others, like Honda Finance Europe, have also halted new credit approvals.

The FCA has been granted permission to intervene in the Supreme Court case. The regulator is considering implementing an industry-wide compensation scheme for customers mis-sold car finance, which could cost the industry up to £44 billion.

Despite the Supreme Court's rejection of its intervention, the Treasury plans to monitor the situation closely, emphasizing the need for compensation to be proportionate to consumer losses and expressing concerns about potential market disruption.

The ruling could lead to significant compensation for consumers who were mis-sold car finance agreements with undisclosed commissions. This may enhance transparency and fairness in the motor finance market.

The potential financial burden on lenders raises concerns about the stability of the motor finance sector. There is apprehension that substantial compensation payouts could lead to reduced availability of car loans or higher interest rates for consumers.

The current situation draws parallels to the PPI mis-selling scandal, where banks paid over £50 billion in compensation for mis-sold insurance products. Both cases involve issues of transparency and consumer consent, highlighting ongoing challenges in ensuring fair financial practices.

The Supreme Court's decision to exclude the Treasury from intervening in the motor finance appeal marks a critical juncture in the unfolding scandal over undisclosed commissions. As the April hearing approaches, the motor finance industry braces for potential repercussions that could reshape lending practices and consumer protections in the UK.