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Lloyds and Close Brothers shares rise after Reeves intervenes in car finance case

Lloyds and Close Brothers shares rise after Reeves intervenes in car finance case

The share prices of car finance giants Lloyds and Close Brothers soared on Tuesday after chancellor Rachel Reeves attempted to intervene in a court hearing into the possible mis-selling of car loans.

The Supreme Court will hear a case in April in which it will decide whether to uphold a landmark motor finance commission back-of-the-envelope ruling handed down in October.

Such a decision could eventually lead to car finance companies paying out up to £30bn in combined compensation to consumers.

But the Treasury submitted an application to the Supreme Court this week, arguing that it should be able to present evidence in the next case.

The filing argued that the case could harm the industry and make it more difficult and expensive to obtain loans to finance automobiles.

He also said it could “lead to the perception that regulation in the UK is uncertain”.

The letter, which was first published by the Financial Times, also warned that “any remedy should be proportionate to the loss actually suffered by the consumer and avoid conferring a windfall gain.”

Lloyds and Close Brothers, two other of the biggest players in the sector, saw their share prices rise by 4% and 21% on Tuesday respectively.

The Supreme Court will rule on a Court of Appeal ruling in October that said it was illegal for car dealers to obtain commissions from lenders without receiving the customer’s fully informed consent for payment.

It means that customers should have been clearly told how much commission the distributors would earn and accept it.

The decision opened the floodgates to a possible new wave of complaints from motorists who think they may have been undersold in previous years.

While the industry awaits the ruling, the Financial Conduct Authority (FCA) is separately investigating whether there was widespread misconduct in the car finance market and, if so, how affected consumers should be compensated.

Lawyers for those who could receive compensation payments criticized the intervention.

Elizabeth Comley, chief operating officer of law firm Slater and Gordon, said her firm represents “tens of thousands of people who have been unfairly affected” by the practices of auto finance salespeople.

He said: “While we recognize the importance of maintaining trust in British lenders, this cannot be done at the expense of justice for those affected.

“Consumers deserve accountability and redress when they have been harmed, and Rachel Reeves’ attempts to protect lenders from the consequences of their actions risk undermining public confidence in the financial sector as a whole.”

It comes after Reeves has lobbied regulators to cut red tape in a bid to support economic growth and make the UK’s financial services sector more competitive.

A Treasury spokesman said: “We want to see a fair and proportionate ruling that guarantees consumers compensation proportionate to the losses they have suffered and allows the car finance sector to continue playing its role in helping millions of drivers own vehicles. “