Lenders try to reverse crunch court-case win for car buyers

British lenders are heading to the supreme court this week as they try to overturn a ruling that has propelled the car finance scandal to new heights, triggering government intervention and prompting fears of a £44bn compensation bill.

- Kalyeena Makortoff

Two specialist lenders, Close Brothers and FirstRand, are challenging three consumers who collectively won a court of appeal case in October. That ruling said that failing to disclose plainly to consumers the amount of commission paid to dealers, and get their informed consent, was unlawful.

The decision sent shockwaves through an industry already spooked by the potential fallout of a much smaller car loans investigation launched by the Financial Conduct Authority (FCA) last January.

The high-profile case is due to run for three days from Tuesday in front of judges including the supreme court president, Lord Reed, in London. Depending on the final ruling, it could have significant implications for both the financial services industry and inbound UK investment.

Roughly 90% of new cars, and a growing number of used vehicles, are bought with the help of motor loans, many doled out through car dealers.

While the ruling was in reference to car loans, there are fears that it could encompass a range of financial products that are sold on commission, including insurance, resulting in a massive compensation bill that analysts have been loath to estimate.