LONDON (Reuters) – On Monday, the UK Supreme Court declined a request from finance minister Rachel Reeves to intervene in a significant case regarding car loan mis-selling, causing shares in lenders Close Brothers and Lloyds Banking Group to drop significantly.
In January, the UK Treasury expressed concerns that a court decision made in October, if upheld on appeal, could hinder consumers’ ability to obtain car loans.
The Treasury maintained that any compensation for customers should also be commensurate with the losses incurred by consumers.
As of 1615 GMT, shares in Close Brothers had dropped by 6.8%, having previously experienced a decline of up to 15%, trading at 295 pence per share. Lloyds’ shares, which were initially up along with many banks before the ruling, fell by 2.7%.
The UK’s motor finance sector was deemed responsible for “hidden” commissions following an inquiry into past sales, potentially marking one of the country’s most expensive consumer banking scandals, as found by the Court of Appeal in October.
Both Close Brothers and Lloyds are part of a group of lenders engaged in motor finance. Lloyds has allocated £450 million ($567.36 million) to address potential compensation, while Close Brothers announced last week that it has set aside up to £165 million for associated costs.
A representative for the UK Supreme Court confirmed that the Treasury’s application was denied, while a request from the UK regulator, the Financial Conduct Authority, was approved. The justices did not provide an explanation for the denial, the spokesperson noted.
Shore Capital indicated that the news about the application rejection would be a “disappointment to the market.”
($1 = 0.7931 pounds)
(Reporting by Samuel Indyk and Sam Tobin; Editing by Amanda Cooper and Tommy Reggiori Wilkes)
