Close Brothers is among the most exposed banks to car loans, as they have set aside £165 million, as their mis-selling of car loans triggered a 8 per cent fall in shares yesterday and 2 per cent down this morning, after judges including Supreme Court president Lord John Reed,  prevented the government from supporting the industry in a looming court case.

The Supreme Court is due in April to hear an appeal brought by car loan providers challenging a ruling last year from the Court of Appeal, which sided with consumers who complained about “secret” commissions on car loans.

The judgement said that it was unlawful for banks to pay a commission to a car dealer without the customer’s informed consent, resulting in shockwaves through the banking system. Lloyds, which owns the country’s largest car finance lender Black Horse, has set aside £450million to cover provision to potential redress and legal costs, shares in the bank fell 2 per cent.

However, the Supreme Court has allowed the Financial Conduct Authority and trade body the National Franchised Dealers Association, to intervene in the case. In 2021, the Financial Conduct Authority banned deals in which the dealer received a commission from the lender, based on the interest rate charged to the customer. It said this provided an incentive for a buyer to be charged a high-than-necessary interest rate.

Treasury officials said that as the UK economics ministry, it was appropriate HMT sought to share its perspective potential impact of the Court of Appeal’s judgement with the Supreme Court, so it could be factored into its deliberations.