Chancellor Considers Overruling Supreme Court on Car Finance Payouts

The UK government is considering an unprecedented move to overrule the Supreme Court regarding a potential £44 billion car loan commission scandal. Chancellor Rachel Reeves is weighing options to retrospectively change the law, potentially cutting liabilities for major lenders like Lloyds, Santander, Barclays, and Close Brothers. This comes as the financial sector anxiously awaits the Supreme Court’s decision on August 1st, which could uphold a previous ruling entitling customers to significant compensation for undisclosed commissions paid to car loan brokers.
Current regulations on such payments are based on common law, meaning judges, not Parliament, set the precedents. The proposed new legislation would grant Parliament the final say on commission disclosure to borrowers. Crucially, if enacted, these laws could apply to past cases and contracts, drastically reducing the compensation burden for lenders and preventing the scandal from spreading to other financial products involving commission payments.
This consideration follows extensive lobbying by the Financing & Leasing Association (FLA) and Lloyds Banking Group, both of whom face substantial exposure to the potential payouts. While retrospective legislation is rare and often controversial, it has been used in the past, though typically to protect public funds rather than private companies.
The Treasury’s deliberations are sensitive, as the government aims to avoid appearing to disrespect the judicial process. However, there are growing concerns that a ruling favoring consumers could severely impact the car finance market, leading to fewer or more expensive loans, and potentially even bankruptcies for some providers. The Treasury is also worried about the scandal deterring investment and dampening international appetite for UK company shares.
This potential intervention aligns with the current government’s broader push for regulatory changes aimed at stimulating economic growth. The Chancellor had previously attempted to intervene in the Supreme Court case in January, arguing against a “windfall” for consumers, but her submissions were ultimately rejected. 1 Lenders argue that the appeal court’s previous ruling set an unreasonably high bar for disclosing commission arrangements, exceeding what they believed was necessary under existing regulatory guidelines.