The UK Supreme Court has denied the finance minister's request to intervene in a significant case involving alleged mis-selling of car loans, leading to a sharp decline in shares of financial institutions like Close Brothers and Lloyds Banking Group. The case, which centers on hidden commissions in motor finance sales, has raised concerns about consumer access to car loans and the potential financial impact on lenders. The Treasury had previously expressed worries that an unfavorable court decision could make it difficult for consumers to secure car loans. Despite these concerns, the Supreme Court rejected the government’s intervention, while allowing the Financial Conduct Authority (FCA) to proceed with its application. This development has sent shockwaves through the market, particularly affecting companies involved in motor finance.

The controversy surrounding car loan practices in the UK dates back to an October ruling by the Court of Appeal, which found the motor finance industry liable for undisclosed commissions. This investigation into past sales practices has the potential to become one of the most costly consumer banking scandals in the country. The British Treasury had argued that any compensation to consumers should be proportional to their losses, fearing that an unbalanced judgment could disrupt the lending market. However, the Supreme Court's refusal to allow government involvement suggests that the legal process will continue without direct interference from the finance minister.

Close Brothers and Lloyds Banking Group, two major players in the motor finance sector, have already begun preparing for the financial fallout. Close Brothers recently announced it has set aside up to £165 million to cover costs related to the claims, while Lloyds has allocated £450 million for potential redress. These provisions highlight the seriousness of the situation and the significant financial implications for the industry. The stock market reacted swiftly to the news, with Close Brothers' shares plummeting by as much as 15% at one point, before settling at a 6.8% drop. Meanwhile, Lloyds shares also took a hit, falling 2.7% by the end of the trading day.

The rejection of the Treasury's application by the Supreme Court signals that the judiciary is maintaining its independence in handling this sensitive matter. Analysts at Shore Capital noted that the decision would likely disappoint the market, given the uncertainty it introduces into the financial landscape. As the case moves forward, all eyes will be on how the FCA proceeds and what further developments may arise in this complex legal battle. The outcome could have far-reaching consequences for both consumers and lenders in the UK motor finance sector.