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Banks’ hopes of being shielded from a multibillion-pound mis-selling scandal suffered a blow on Monday after judges prevented the UK government from supporting the industry in a looming court case.
The Treasury had taken the unusual step of seeking permission to intervene in the forthcoming Supreme Court case, warning that an adverse ruling could hurt the banking sector and stunt growth.
The decision by the five-member panel of judges, including Supreme Court president Lord Reed, to prevent the government from stepping in is a setback for banks facing a compensation bill running into tens of billions of pounds. Reasons were not given for the refusal.
Shares in Close Brothers, which is among the most exposed banks to car loans and last week said it expected to set aside £165mn over the potential mis-selling, fell 7 per cent on Monday.
The Supreme Court is due in April to hear an appeal brought by car loan providers challenging a ruling last year from the Court of Appeal, which sided with consumers who complained about “secret” commissions on car loans.
The judgment that it was unlawful for banks to pay a commission to a car dealer without the customer’s informed consent has sent shockwaves through the banking system.
Lloyds chief executive Charlie Nunn said in December that the UK faced an “investability problem” after the court ruling.
Lloyds, which owns the UK’s largest car finance lender Black Horse, has booked a £450mn provision to cover potential redress and legal costs.
The Treasury said: “We are the UK’s economics ministry so it was the right thing for us to do. We respect the Supreme Court’s decision.”
