This afternoon, Britain’s highest court will deliver a bombshell ruling that could rock the financial system and blow a £44billion hole in the banking sector. The Supreme Court is set to decide whether millions of car finance deals were allegedly mis-sold thanks to shady “secret commission” payments between lenders and dealers.
These kickbacks, often hidden from buyers, gave dealers an incentive to jack up interest rates to line their own pockets. The case hinges on whether these deals broke consumer protection laws. The Court of Appeal ruled they did. Now it’s up to the Supreme Court to have the final say. If it agrees, a compensation tsunami could follow.
Estimates for the total industry range from £30billion to £44billion, potentially rivalling the infamous £50billion PPI scandal.
This isn’t just about motors. The judgment could hit any hire-purchase deal involving undisclosed commissions, from sofas and laptops to fridges and beds.
Banks are bracing for impact. Lloyds has already put aside £1.2billion, Close Brothers £165million, Santander £295million. But that may be nowhere near enough.
Consumer campaigners, including Martin Lewis, warn of a full-blown reckoning for the credit industry. A separate Financial Conduct Authority probe into “discretionary commission agreements”, banned in 2021, is still to come.
So where does Rachel Reeves come in?
The Chancellor is said to be scrambling behind the scenes to prevent a second PPI-style scandal on her watch.
She’s warned the fallout could torpedo the reputation of UK financial services, and make car finance harder and more expensive for working families.
At Davos in January, she raised fears the ruling could choke off access to credit. In an extraordinary move, she even tried to intervene in the court case itself, but judges refused to hear her argument.
That’s rare, and raises serious questions. Should a Chancellor be leaning on judges to head off a redress scheme?
Critics say it smacks of overreach. Or worse, a stitch-up to protect the banks.
If she blocks payouts, she’ll be accused of siding with big finance over ripped-off consumers. With up to 23million people potentially affected, that’s a political nightmare waiting to happen.
Lords Reed, Hodge, Lloyd-Jones, Briggs and Hamblen will publish their verdict at 4.35pm — five minutes after the stock market closes.
That’s highly unusual, and suggests the judges know this could rattle investors. Lloyds Banking Group, heavily exposed through its Black Horse motor arm, is firmly in the firing line.
Reeves is now caught in a trap. She’s promised to restore trust in Britain’s institutions but any attempt to override the courts risks torching trust in her government instead.
A ruling that slams secret commissions could blow apart a swathe of UK consumer lending practices. Banks may tighten credit. Borrowers could face higher costs.
PPI payouts hurt banks but they also gave households and economy a cash boost. This time, the damage may outweigh the economic benefits.
Some warn the Chancellor could even try to change the law to dodge the fallout, a nuclear option that would spark uproar.
But consumer advocates say millions were misled and deserve justice. The stakes couldn’t be higher. The verdict lands today. Watch this space.