UK court hears car loan case as banks risk huge payout
LONDON
The U.K.'s highest court on April 1 opens a hearing to determine whether controversial car loans were unlawful, in a case that could cost banks billions of pounds in compensation.
Lenders are appealing a landmark ruling by a Court of Appeal in November that deemed it 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 in the three-day hearing.
The loans, which were around for 14 years from 2007, incentivised car dealers to give higher interest rates in return for a higher commission.
Britain's financial watchdog has made the commissions illegal.
The Supreme Court will consider two cases against South African lender FirstRand bank and one against British bank Close Brothers.
In preparation for the ruling, British banks have set aside considerable sums, including Lloyds Bank, which has earmarked nearly £1.2 billion ($1.6 billion).
Consumer group Which! estimated it could cost banks up to £16 billion, while other analysts expect the sums to be higher, with those at HSBC suggesting it could hit £44 billion.
While the hearing is due to conclude on April 3, a judgment is not expected until the summer.
