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(Sharecast News) - Shares in car finance providers rallied on Tuesday, after the government reportedly intervened in favour of the under-pressure industry.
According to the Financial Times, citing a government submission made to the Supreme Court, the Treasury believes a landmark mis-selling case has the potential to cause "considerable economic harm", as well as impacting both the availability and cost of motor finance.
Accusations of mis-selling have sent shockwaves through the car finance industry.
In October, the Court of Appeal ruled it was illegal for banks to pay commission to a car dealer without the customer's informed consent.
The Financial Conduct Authority is also investigating, and is expected to establish a major compensation scheme in light of the ruling.
Analysts at HSBC believe the total cost could reach 44bn, although others have put the likely final bill closer to between 20bn and 30bn. Around 80% of new vehicles in the UK are bought on finance.
Lloyds Banking Group - which owns motor finance provider Black Horse - has already set aside a 450m provision, while in November, the British arm of Spain's Santander blamed a slide in third-quarter profits on its own 295m provision.
Close Brothers and South African lender FirstRand are challenging October's ruling in the Supreme Court, however, with the case due to be heard in early April.
In its submission to the Supreme court, the Treasury warned that the case could "generate a perception that regulation in the UK is uncertain", the FT said.
The submission also noted that if liability was established, the Treasury would seek to persuade the court that remedies were proportionate to losses actually suffered, to "avoid conferring a windfall".
One government insider told the newspaper: "The chancellor's concerned that the judgement risks using a sledgehammer to crack a nut. That would be bad for consumers and bad for the industry."
As at 1000 GMT, shares in Close Brothers had soared 22% at 297.8p, while Lloyds put on 4% at 61.28p and FirstRand was trading 2% stronger in South Africa.
Only Santander failed to benefit, with its London shares softening 1% and the Madrid stock down 2%.
Official bodies can apply to the Supreme Court, the UK's highest, to intervene in any case it hears. Permission is only granted if the court believes the intervention will offer "significant" assistance to its judges.