Rachel Reeves is reportedly considering overruling the Supreme Court if judges rule in favour of consumers in the £44 billion car finance scandal.
According to reports, the Chancellor is exploring plans for the Government to retrospectively change the law to limit the compensation lenders would have to pay if the Supreme Court upholds a recent Court of Appeal ruling. This could significantly reduce the financial liabilities of Britain’s biggest banks and lenders.
The scandal revolves around claims from drivers who say they were unlawfully sold car loans, potentially forcing lenders, including Close Brothers, Barclays, Santander, and Lloyds, to pay out up to £44 billion in compensation. The Treasury is debating whether new legislation could be applied retrospectively to cover past contracts and cases, a move that would lower the multibillion-pound payouts faced by these lenders.
Retrospective legislation could also prevent the scandal from expanding beyond car loans, shielding lenders from further claims related to commission payments on other financial products, such as loans for household appliances and furniture.
Government sources have neither confirmed nor ruled out such an intervention by Reeves.
The Supreme Court was expected to announce a date for its ruling on Thursday, but did not, raising the possibility that a decision could coincide with the autumn Budget.
This follows a February ruling in which the Supreme Court halted the Chancellor’s attempt to block compensation payments to drivers. The Treasury had argued that large payouts could harm the UK economy and deter investment, insisting that any compensation should be capped.
Currently, the rules governing these payments are based on common law, meaning they are shaped by judicial decisions rather than Parliamentary legislation. New laws would give Parliament ultimate authority over the regulation and transparency of commission arrangements given to borrowers.
While retrospective legislation on compensation cases is rare and controversial in the UK, it is not without precedent. In 2013, Parliament passed the Jobseekers (Back to Work Schemes) Act, which prevented £130 million in compensation payments to individuals whose benefits were stopped after refusing to work for private companies.
Several lenders have already set aside funds to cover potential compensation costs: Lloyds Banking Group has reserved £1.2 billion, Santander UK £295 million, and Close Brothers £165 million.
The Treasury is yet to comment.
