UK's Reeves seeks to shield lenders in car loan mis-selling case

(Reuters) -British finance minister Rachel Reeves has launched a bid to intervene in a landmark car loan mis-selling case, in an effort to shield the motor finance industry as it faces a potential multi-billion pound payout to consumers.

Britain's Treasury is worried that a court judgment handed down in October, if allowed to stand on appeal, would wreck the car finance sector and make it hard for consumers to get loans. Around 80% of new vehicles in the UK are bought on finance.

The Treasury said on Tuesday it would express its concerns in an upcoming appeal in the Supreme Court brought by car loan providers against the ruling by the Court of Appeal, which had sided with consumers.

Shares of car loan providers Close Brothers and Lloyds jumped on Tuesday after the Financial Times first reported the Treasury's bid to intervene in the case, with Close Brothers rising 20% and Lloyds gaining 4.3%.

Shares in both companies had been hammered in after the initial judgment in October as analysts estimated the sector's total compensation bill could reach 16 billion pounds ($21 billion), making it Britain's costliest consumer banking scandal in years.

"We want to see a fair and proportionate judgment that ensures compensation to consumers that is proportionate to the losses they have suffered, and allows the motor finance sector to continue playing its role in supporting millions of motorists to own vehicles," a Treasury spokesperson said in a statement.

The Treasury will argue that the uncertainty caused by the judgment could undermine the competitiveness of UK regulations, and that the Court of Appeal's approach to consumer redress may not be proportionate.

The court had ruled it was unlawful for car dealers to receive a commission from banks providing motor finance without obtaining the customer's informed consent.

The UK arm of Spain's Banco Santander had set aside 295 million pounds ($364 million) to cover possible costs related to an ongoing regulatory review into charging by car finance lenders.

Lloyds has also set aside a 450 million pound provision to cover possible redress linked to the review.

($1 = 0.8116 pounds)

(Reporting by Sachin Ravikumar and Gnaneshwar Rajan; additional reporting by Kanjyik Ghosh and Gursimran Kaur; Editing by Muralikumar Anantharaman and Peter Graff)