\n<\/p>\n
The supreme court has partly overturned an earlier ruling on the car finance commission scandal \u2013 seemingly granting UK banks a reprieve and potentially limiting compensation payouts to those consumers whose cases are more serious.<\/p>\n
We explain what this means for car buyers, whether anyone should expect compensation, and what the next steps are.<\/p>\n
The car loans scandal has been rumbling on for more than 18 months but ballooned after a court of appeal judgment that sided with three consumers in October 2024.<\/p>\n
Before that point, the Financial Conduct Authority (FCA) was running a narrower investigation into discretionary commission arrangements (DCAs), where motor finance lenders gave dealers the power to set interest rates on car loans. The higher the interest rate, the more commission the dealer received. The controversial practice \u2013 which allegedly incentivised dealers to overcharge customers \u2013 was eventually banned by the FCA in 2021.<\/p>\n
In the meantime, three car buyers took their cases to the court of appeal, which ruled on the much wider issue of how commissions were disclosed. In October 2024, that court sided with the claimants and ruled that it was against the law for the dealers to receive any sort of commission from the lender without first telling the customer and getting their informed consent.<\/p>\n
The shock decision had ramifications for all hidden commission arrangements, not just DCAs. Across the UK, 80-90% of new cars, and an increasing number of used vehicles, are bought with the help of a loan, the vast majority of which would be arranged by a broker who is paid commission by a lender.<\/p>\n
The judgment threw open the door to a huge compensation bill for car lenders \u2013including Santander UK, Close Brothers, Barclays and Lloyds \u2013 that some analysts said could top \u00a344bn. That would be comparable to the payment protection insurance (PPI) saga, which cost banks \u00a350bn. It also raised concerns that other types of loans involving commission payments to brokers could be in play, such as those for appliances and furniture.<\/p>\n
The two specialist lenders involved in the court of appeal case, Close Brothers and FirstRand, challenged the ruling in the supreme court, which has now revealed its verdict.<\/p>\n
It has partly overturned the decision, apparently closing the door to compensation except in more serious cases.<\/p>\n
In their ruling, a panel of justices led by the supreme court president, Lord Reed, upheld only one consumer\u2019s case, originally filed by Marcus Johnson. Cases brought by two other consumers \u2013 alleging that commissions paid to car dealers were bribes and that dealers owed a duty of loyalty to the customer \u2013 were rejected.<\/p>\n
The decision will be a blow to many consumers and the claims industry, but the fact that part of the earlier ruling was upheld has complicated the picture and meant that immediately after the verdict, experts had differing views about the potential impact.<\/p>\n
Friday\u2019s judgment followed a three-day hearing at the start of April.<\/p>\n
We won\u2019t have long to wait to find out. The FCA said on Friday that it wanted to provide clarity as quickly as possible, so it would confirm whether it would consult on bringing in a compensation scheme before the stock market opens on Monday morning.<\/p>\n
\u201cOur aims remain to ensure that consumers are fairly compensated and that the motor finance market works well,\u201d it said. \u201cIf we do decide to propose a redress scheme, we\u2019ll consult widely.\u201d<\/p>\n
Many believe the FCA will announce a central compensation scheme for consumers whose agreements included a DCA. That could add up to many thousands, potentially millions, of vehicle buyers.<\/p>\n
The court\u2019s decision to uphold Johnson\u2019s claim has complicated things, however, and could also increase the chances of redress for cases such as his, in which the relationship between the finance company and the customer is deemed to be unfair. What constitutes \u201cunfair\u201d is likely to be the subject of a lot of discussion.<\/p>\n
Richard Coates, a partner and the head of automotive at the law firm Freeths, said: \u201cIt is anticipated that the FCA will bring redress for those cases where it is deemed that the relationship is unfair, and we expect to learn more from the FCA about this redress scheme within the next six weeks.\u201d<\/p>\n
Interested parties, however, could challenge any scheme in court. They will have six weeks to refer it to the upper tribunal, which could put the brakes on any redress programme.<\/p>\n
But barring any legal challenge or further delay, the FCA scheme would probably start operating next year, meaning former car-loan customers could start receiving compensation in 2026.<\/p>\n
Those most likely to be eligible are those whose agreement included a DCA, though the FCA could restrict or widen eligibility depending on its own continuing work and its views of the latest judgment.<\/p>\n
DCAs were by far the most common commission arrangement before they were outlawed: on average, between 2007 and 2020, about three-quarters of all agreements had a DCA of some sort, says the regulator.<\/p>\n
The \u201cend date\u201d for potential eligibility for any redress has been suggested as 28 January 2021, when DCAs were banned.<\/p>\n
This is still unclear and will hinge on the scope of the FCA\u2019s redress scheme \u2013 assuming it definitely happens \u2013 with more details likely in the coming weeks and months.<\/p>\n
The FCA has indicated it would need to balance the interests of consumers, firms and the broader economy when setting up a compensation scheme. The regulator has said that as well as being \u201cfair to consumers who\u2019ve lost out\u201d, any scheme must \u201censure the integrity of the motor finance market, so that it works well for future consumers\u201d.<\/p>\n
In the case of DCAs, the regulator has estimated that consumers may have been overcharged by \u00a31,100, as a result of paying too much interest on a typical \u00a310,000, four-year car finance deal where this arrangement was used. But whether individuals would get back all or just a part of their \u201closs\u201d remains to be seen. It could also require firms to pay interest on top of any compensation, which could add up to a lot if it is several years\u2019 worth.<\/p>\n
Meanwhile, claims law firms have said some clients were charged much more, amounting to several thousand pounds more in hidden commission.<\/p>\n
Social media and websites have been littered with adverts claiming consumers could be entitled to thousands in compensation, and urging them to act fast.<\/p>\n
But the FCA and Solicitors Regulation Authority (SRA) are concerned that some firms are not telling consumers about free alternatives, are making bold and sometimes misleading claims about payouts, and are charging fees worth up to 30% of any compensation payout.<\/p>\n
Over the past year, the FCA has forced 224 motor finance commission adverts to be changed or pulled entirely, while the SRA is now investigating 73 law firms for potential breaches.<\/p>\n
Some claims management companies are merely fishing for customer \u201cleads\u201d, which are then passed on to third-party law firms for a fee.<\/p>\n
The Treasury said: \u201cWe respect this judgment from the supreme court and we will now work with regulators and industry to understand the impact for both firms and consumers.\u201d<\/p>\n
The government has been the target of heavy lobbying by the car loan industry, which had warned that a big compensation bill could force lenders to claw back their losses \u2013 resulting in some car finance providers offering fewer or more expensive loans, while others could go bust.<\/p>\n
The Treasury has also been concerned that the scandal is deterring investment in the financial services industry, and therefore putting the UK\u2019s economic growth at risk.<\/p>\n
The Guardian revealed last week that the chancellor, Rachel Reeves, had been considering overruling the supreme court\u2019s decision with retrospective legislation, in order to help save lenders billions of pounds, in the event that it upheld the entirety of October\u2019s court of appeal ruling. Given Friday\u2019s verdict, that will not happen.<\/p>\n","protected":false},"excerpt":{"rendered":"
The supreme court has partly overturned an earlier ruling on the car finance commission scandal \u2013 seemingly granting UK banks a reprieve and potentially limiting compensation payouts to those consumers whose cases are more serious. We explain what this means for car buyers, whether anyone should expect compensation, and what the next steps are. How<\/p>\n","protected":false},"author":1,"featured_media":13525,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[56],"tags":[1495,160,2015,2851,7197,571,2963,159],"class_list":{"0":"post-13524","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-crime-justice","8":"tag-car","9":"tag-court","10":"tag-loan","11":"tag-means","12":"tag-motorists","13":"tag-ruling","14":"tag-scandal","15":"tag-supreme"},"_links":{"self":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/13524","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=13524"}],"version-history":[{"count":0,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/13524\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/media\/13525"}],"wp:attachment":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=13524"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=13524"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=13524"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}