Anger as Chancellor moves to cap compensation for car loan victims | Personal Finance | Finance

Rachel Reeves has moved to cap the compensation offered to victims of the car loans scandal following pressure from the big banks.

Finance giants have been putting pressure on the Chancellor to limit payouts amid some predictions they could be left with a bill of £30 billion.

The news that compensation could be capped has seen the share prices of some big banks, including Lloyds and Close Brothers, surge because the hit to profits will be much lower than previously thought.

However, legal experts representing millions of car owners condemned the move to put the financial interests of the big banks ahead of the need to offer proper redress to wronged consumers.

The problem surrounds the fact that millions of people who bought vehicles through loans were charged secret commissions that were not properly disclosed to them.

Elizabeth Comley, Chief operating officer at solicitors Slater and Gordon, who are representing “tens of thousands of individuals who have been unfairly impacted” hit out against any move to cap compensation.

“While we recognise the importance of maintaining confidence in British lenders, this cannot come at the expense of justice for the individuals affected,” she said.

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

The Supreme Court is set to hear a case in April, deciding whether to uphold an October ruling on concealed motor finance commission arrangements.

However, this week the Treasury lodged an application with the Supreme Court, arguing it should be allowed to present evidence in the forthcoming case. It suggested that the case could harm the industry and make securing car finance loans more challenging and costly.

It also warned it could “generate a perception that regulation in the UK is uncertain”.

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

The effect of the Treasury’s intervention could be to limit the compensation paid to the drivers involved, while protecting the profits of firms like Lloyds, Close Brothers, Barclays, Santander and many others.

It has been suggested that Lloyds alone could face a bill of £2 billion with estimates of £800m for Santander.

Santander indicated this week that it might pull out of the UK. It was suggested that financial regulation rules and the car loan compensation bill would be instrumental in any final decision.

A Treasury spokesperson said: “We want to see a fair and proportionate judgment that ensures compensation to consumers that is proportionate to the losses they have suffered, and allows the motor finance sector to continue playing its role in supporting millions of motorists to own vehicles.”