Berliner Tageblatt - UK top court to rule on multi-billion pound car loan scandal

The loans, made available for 14 years from 2007, incentivised car dealers to offer higher interest rates in return for a bigger commission from banks.

The Supreme Court will determine whether to uphold a judgment by the Court of Appeal last year that ruled it was unlawful for car dealers to receive a commission on loans without sufficiently informing borrowers.

It is estimated that millions of drivers would be eligible for compensation should the Supreme Court side with borrowers, following its three-day hearing in April.

One case involves Marcus Johnson -- who in 2017 bought a Suzuki Swift from a car dealer in Cardiff for £6,500 ($8,560 today) including loan costs -- unaware that interest paid on the loan amount would fund commission of more than £1,600.

When the Court of Appeal ruled in favour of Johnson, ordering South African lender FirstRand Bank to refund the commission plus interest, it sparked panic across the finance sector.

British banks have set aside considerable sums in preparation for the ruling, including Lloyds, which has earmarked nearly £1.2 billion.

The total estimated cost for banks varies, but HSBC bank analysts suggested before the trial that it could come to £44 billion.

Since then, analysts have revised down the potential exposure of banks, British media reports suggesting a figure of around £11 billion.

In the three cases being judged by the Supreme Court, consumers are also facing off against British bank Close Brothers.

The Financial Conduct Authority, which banned undisclosed commissions in 2021, could mandate a collective automatic compensation programme should the court sides with borrowers.

Analysts said that Britain's Labour government may be concerned about the impact on banks' willingness to provide credit amid economic uncertainty caused by US tariffs and geopolitical unrest.

Finance minister Rachel Reeves is reportedly considering changes to the law to limit the banks' exposure.

G.Schulte--BTB