Chancellor Rachel Reeves could explore ways to override a potential Supreme Court decision regarding a £44billion car finance compensation controversy, according to new reports.
Ministers are examining the possibility of introducing retrospective legislation that would reduce financial institutions' exposure to compensation claims, should the highest court support a landmark ruling from October's appeal court proceedings.
Government officials have engaged in discussions with both the Ministry of Justice and the Department for Business and Trade about the practicality of superseding any adverse judicial outcome, The Guardian claims.
The proposed intervention would mark an exceptional step by the Treasury, particularly given Chancellor Rachel Reeves' previous unsuccessful attempt to influence the Supreme Court proceedings in January.
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|Chancellor Rachel Reeves could attempt to intervene in the car finance scandal
The financial sector awaits the court's verdict, anticipated next week, which will determine whether motor finance providers must compensate customers over undisclosed broker commission arrangements.
The measures under consideration would involve Parliament passing new primary legislation to establish clear rules on commission disclosure, replacing the current common law framework established through judicial precedent.
Most significantly, ministers are contemplating whether such legislation could apply retroactively to existing cases and historical contracts.
This could potentially reduce the compensation burden facing institutions including Lloyds, Santander, Barclays and Close Brothers.
PA | The Supreme Court is expected to deliver a verdict on the car finance scandal soon
The retrospective application would aim to prevent the controversy from extending beyond vehicle financing into other consumer credit products where brokers receive commissions.
These plans have emerged following sustained lobbying efforts by the Financing and Leasing Association, representing motor finance providers.
The October appeal court decision established that motor finance providers acted unlawfully by failing to disclose broker commission amounts and terms to borrowers.
This ruling created a significantly higher standard for transparency than financial institutions had previously understood to be necessary under Financial Conduct Authority regulations.
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The judgment potentially entitles millions of customers to compensation, with the total liability estimated at £44billion across the sector.
Motor finance providers have maintained that they believed their existing practices complied with regulatory requirements before the appeal court's interpretation of common law obligations.
The case proceeded to the Supreme Court following the October ruling, with a three-day hearing conducted in early April to examine the legal principles at stake.
The FLA has cautioned that an unfavourable verdict could destabilise the motor finance market, potentially leading to reduced lending availability, increased borrowing costs, and possible insolvencies among providers.
GETTY | Drivers could receive an update on compensation in the coming weeks
Treasury officials harbour concerns that the controversy is discouraging investment and diminishing American interest in UK equities during a critical period for London Stock Exchange revitalisation efforts.
Major lenders have already set aside hundreds of millions of pounds ahead of a potential compensation redress scheme.
A Treasury spokesperson told The Guardian that it does not comment on speculation, noting that it is appropriate for the appeals process to "run its course".
They added: "We want to see a balanced judgment that delivers compensation proportionate to losses that consumers have suffered and allows the motor finance sector to continue supporting millions of motorists to own vehicles."