Rachel Reeves’ efforts to intervene in the supreme court case on the car finance scandal were “unprecedented and disgraceful” and send a “really bad message” to consumers that the government is willing to defend wrongdoing by banks, Treasury committee member and Lib Dem MP Bobby Dean has said.
While the supreme court largely sided with finance companies on Friday – helping lenders avoid a £44bn compensation bill – Dean said the chancellor had gone too far to show she was on the side of business.
That included a controversial bid to intervene in the supreme court hearing in January, in which she urged judges to avoid handing “windfall” compensation to borrowers. That attempt was ultimately rejected.
“I thought it was pretty unprecedented and pretty disgraceful,” said Dean, who sits on an influential parliamentary committee which scrutinises City firms, regulators and the Treasury.
The chancellor had also been considering overruling the supreme court’s decision with retrospective legislation, to help save lenders billions of pounds, in the event that it upheld the entirety of October’s court of appeal ruling, the Guardian revealed last week.
“What message does it send to consumers that the industry can do wrong, the courts can support the claim that they’ve done something wrong, but the government is ready to intervene and defend the industry that’s done wrong, instead of defending the consumer? I think that’s a really bad message to put out,” Dean said.
“I feel like this government sometimes is too keen to demonstrate it is on the side of business, and is sometimes not understanding the rights of consumer,” he added.
Reeves intervention efforts followed intensive lobbying by the car loan industry, which feared that the supreme court would uphold last October’s shock ruling by the appeal court.
That October ruling suggested commission payments paid by lenders to car dealers were unlawful, unless explicitly disclosed to borrowers. It could have opened the door to billions of pounds of compensation claims against companies including Lloyds Banking Group, Santander UK, Barclays and Close Brothers, and result in a redress scheme that rivalled the £50bn payment protection insurance saga.
Lobby group the Financing and Leasing Association (FLA) – which represents car lenders – had warned the government that a big compensation bill could push some lenders into failure, while others would offer fewer or more expensive loans to claw back their losses. That could restrict options for borrowers who relied on credit.
City bosses were also warning the Treasury that ongoing uncertainty over the scandal was deterring international investment in the finance industry, and was therefore putting the UK’s economic growth at risk
The FLA’s head of motor finance Adrian Dally said that the lobby group was “pleased” with the supreme court’s ruling, and felt its concerns had been heard by Treasury and regulators. He confirmed the FLA had been speaking with the Treasury nearly every week in the wake of the court of appeal ruling in October, including about its concerns on the car finance case.
However, he rejected suggestions the Treasury had prioritised the industry over consumers. “We absolutely disagree with that because, ultimately, this [car finance] industry is a vital part of the nation’s infrastructure, and enables millions of people to get to work, to get to school, and that was put at risk by these court cases. And ultimately, we believe the industry’s interests and the consumers’ interests are aligned on this.”
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But Dean said government interventions set a “really bad precedent if you’re going to intervene on cases of consumer redress on the basis that it might damage industry, because then almost every consumer redress case would fall,” Dean said.
Dean added that compensation schemes can give consumers confidence to borrow and invest, knowing will be protected when companies take advantage of customers. “Obviously, the best industry is one where these redress systems are not needed in the first place, because people play by the rules.”
The Financial Conduct Authority is due to confirm whether or not it will press ahead with a compensation scheme before the stock markets open on Monday morning.
A Treasury spokesperson said: “It is vital that consumers have access to motor finance to enable them to spread the cost of a vehicle in a way that is manageable and affordable.
“We respect this judgment from the supreme court, and we are working with regulators and industry to understand the impact for both firms and consumers.
“We recognise the issues this court case has highlighted, and we are already taking forward significant changes to the Financial Ombudsman Service and the Consumer Credit Act.”