Chancellor Rachel Reeves is considering introducing emergency legislation that would retrospectively shield major banks from billions of pounds in compensation payouts linked to a mis-selling scandal in the UK motor finance sector, according to The Guardian.
The proposed move would effectively overturn a potential Supreme Court ruling in favor of consumers, as financial institutions brace for liabilities that could exceed £44 billion. The fallout stems from years of discretionary commission arrangements (DCAs) a now-banned practice where car dealers received secretive commission payments from lenders, often leading to inflated interest rates for consumers.
A High-Stakes Legal Battle
The scandal has drawn comparisons to the infamous PPI mis-selling debacle. In a landmark ruling last year, the Court of Appeal found that lenders had a legal obligation to disclose such commissions to borrowers and obtain informed consent. The case is currently under review by the Supreme Court, with a final judgment expected within days.
Despite prior attempts, Reeves was barred from intervening in the ongoing case earlier this year. Now, Treasury officials working in tandem with the Ministry of Justice and the Department for Business and Trade are actively exploring retrospective legal measures to limit the financial exposure of institutions such as Lloyds Banking Group, Barclays, Santander UK, and Close Brothers.
Balancing Banks and Borrowers
The Chancellor has framed the potential legislation as a move to preserve financial stability and consumer credit access. Critics, however, warn that such intervention risks undermining the judiciary and depriving consumers of rightful compensation.
“While car finance needs to remain affordable, this cannot come at the expense of justice for misled consumers,” said a spokesperson for a consumer advocacy group.
Legal scholars note that retrospective legislation is rare and controversial. It was last used notably in 2013 to avoid repaying jobseekers following a separate unlawful government policy. But unlike that case, Reeves’ intervention would protect private sector firms, rather than public coffers.
Political and Market Implications
Should the Supreme Court side with consumers, the government’s decision to legislate retrospectively could mark one of the most significant state interventions in a financial scandal in over a decade. Analysts warn of severe market consequences if banks are forced to absorb the full cost potentially curbing auto loan availability and dampening investor confidence.
Meanwhile, consumer groups are preparing for backlash if compensation is denied. The Financial Conduct Authority (FCA) continues to investigate DCAs and has indicated a redress scheme may be necessary, depending on the court’s final ruling.
What Comes Next
The Supreme Court decision is expected imminently. If the ruling upholds consumer claims, Reeves may introduce legislation within weeks to limit payouts retroactively. The move would almost certainly trigger intense legal and political debate over the government’s role in overriding court judgments.
