Motorists could be denied generous compensation from controversial commissions if Rachel Reeves goes with legislation to soften the impact on car financing companies.
The Chancellor is said to be considering a restrospective change in the law that could supersede a Supreme Court ruling expected next week.
Providers of finance are braced for massive payouts if judges uphold a Court of Appeal judgment from last year.
The Treasury has not denied a report in The Guardian and said it wanted to see “a balanced judgment” that allowed for proportionate redress but did not harm the industry’s ability to provide car finance in future.
Alex Neill, co-founder of Consumer Voice, a campaign group that takes referral fees from law firms, said: “Consumers would be rightly outraged if the Treasury were to intervene in this way.”
The judgement could see millions of motorists who bought cars on finance between 2007 and 2021 who are seeking redress because of commissions paid by lenders to dealerships that were not properly disclosed.
It could match the scale of the mis-selling scandal around payment protection insurance (PPI), which cost the banks £50 billion over a decade.
Moody’s, the ratings agency, has estimated that the commissions case could cost the industry as much as £30 billion and the big banks are setting aside funds in the event they have to pay compensation.
However, the car finance industry may find its ability to operate severely constrained and force it to charge higher interest on repayments. This would reduce demand for cars and have a knock on effect on manufacturers which are already facing lower levels of production.
The Supreme Court judgment is expected at 4.35pm on Friday, 1 August.
Rachel Reeves was in Scotland on Friday but once again engaged only with selected media outlets. Daily Business has decided not to report her visit.
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