UK car finance scandal: Banks fight court ruling that could cost them billions

LONDON — British lenders are stepping up their legal battle in a growing row over car financing deals that could leave them on the hook for billions in payouts.

Lenders have applied for permission to challenge a Court of Appeal ruling last month that found it was unlawful for lenders to have paid commission to car dealers without borrowers’ knowledge and consent. The hidden commission meant consumers paid more for car finance.

The row relates to car finance agreements made between 2007 and 2021, where car dealers forced consumers into higher rates in their contracts in return for extra pay from lenders. The U.K.’s City watchdog, the Financial Conduct Authority, outlawed such deals in 2021. 

Moody’s, the credit ratings agency, predicted the court ruling could leave banks on the hook for as much as £30 billion in consumer redress.

The October judgment came as a “considerable surprise” to lenders, according to permission to appeal documents filed with the Supreme Court — the U.K.’s top court — on behalf of the banks FirstRand and Close Brothers, and seen by POLITICO.

Their challenge, submitted by law firm Eversheds Sutherland, argued judges should grant an appeal because of the “profound” impact of the judgment on the motor finance industry, its possible effect on consumers, and the fact it could spill beyond the world of car finance.

The lenders want an “expedition of its permission to appeal application” and could pursue an expedited hearing if granted, according to the submissions.

The Court of Appeal has previously indicated that the Supreme Court should not grant an appeal, but its advice is not binding.

The banks’ appeal said: “The conclusions of the [Court of Appeal], as set out in the judgment, have come as a considerable surprise to the motor finance industry and legal practitioners in this area.”

The judgment will “obviously have binding effect on lower courts … and has several startling consequences,” it added, saying: “In these circumstances, the impact of the judgment on the motor finance industry is profound.”

Additional reporting by Russell Hargrave.