The UK Supreme Court has dismissed an attempt by Finance Minister Rachel Reeves to intervene in a pivotal motor finance mis-selling case. The news caused a slump in banking stocks, with Close Brothers and Lloyd’s Banking Group suffering heavy losses.
In January, the Treasury said that car financing may become harder for customers because of an October court ruling, which was likely to be appealed. Officials argued that any compensation to customers should be relative to genuine losses.
Banking Stocks Face Immediate Impact
Close Brothers’ shares dropped 6.8%, having earlier plunged by 15% to 295 pence per share. Shares in Lloyds whose share price had been climbing along with most of the banking stocks were 2.7% lower. This court’s effect on the banking industry is a direct consequence of the UK Supreme Court ruling.
This judgment could result in one of UK’s biggest consumer banking scandals. Following an inquiry in 2019 into past sales practices. The Court of Appeal ruled that regulators can take action against the motor finance sector for undisclosed commissions.
Financial Provisions for Potential Compensation
Both Close Brothers and Lloyds operate motor finance businesses. In light of the lawsuit, Lloyds reserved £450 million ($567.36 million) for probable claim payouts. Close Brothers said it may set aside as much as £165 million in respect of similar costs due to the UK Supreme Court decision.
The Treasury’s request to intervene was turned down by the UK Supreme Court. But one made by the Financial Conduct Authority (FCA) was accepted. The justices did not provide reasoning for tossing the request from the Treasury.
Market Analysts React to the Ruling
Investment firm Shore Capital described the Supreme Court’s decision as a “disappointment to the market.” Investors had hoped that the Treasury’s intervention might lead to a different outcome. Potentially easing financial pressures on lenders caused by the UK Supreme Court ruling.
As court cases are underway, the uncertainty looms over the motor finance sector regarding how much compensation will be given to consumers while affecting the industry in the long run.
