Multiple individuals fail to receive compensation following the Supreme Court's decision siding with creditors in dispute over auto loan agreements.
In a landmark decision, the UK Supreme Court has ruled that motor finance lenders are only liable for some commission payments made to car dealers in the £44 billion car finance scandal, also known as the "PPI on wheels." This ruling significantly reduces the financial exposure of lenders, who could have been forced to pay out up to £44 billion in compensation if the ruling had gone against them.
The ruling overturns much of the Court of Appeal's 2024 decision, which held lenders fully liable for undisclosed commissions. The potential compensation bill has been reduced from around £44 billion to an estimated £9 billion to £18 billion.
The court rejected claims that car dealers should be treated as agents or fiduciaries of customers and clarified aspects of the Consumer Credit Act (CCA), finding the relationship unfair only in specific factual circumstances such as the size and presentation of the commission (55% commission and misleading product recommendations in one case) [1][4].
The Supreme Court emphasized the commercial reality of dealer-lender relationships and rejected claims based on civil bribery and dishonest assistance. The ruling also confirmed it is unlawful for dealers to receive commissions without the customer's informed consent but limited the liabilities accordingly [1][2][4].
The outcome of this ruling is seen as a victory for lenders, easing their financial risk, but still leaving substantial potential redress for customers. Consumer groups advocate for compensation schemes, while the Financial Conduct Authority (FCA) has responded to the ruling, indicating regulatory oversight will continue [3][5].
The FCA may still introduce a 'redress scheme' for some customers who were sold car finance deals with hidden commission payments. However, the exact details and scope of this scheme are yet to be determined. The FCA will announce its decision on a redress scheme next month.
The ruling affects millions of car owners who had been hoping for a payout over claims they were mis-sold finance deals dating back more than a decade. Some lenders may still need to pay out compensation to drivers who had unknowingly signed up to a discretionary commission agreement (DCA) when they took out their car loans.
Each year, about two million new and used cars are purchased via car finance deals. In some cases, brokers secured higher interest rates on the loans in return for higher commission, which in turn meant higher payments for motorists.
Martin Lewis CBE, consumer campaigner and founder of Money Saving Expert, advised drivers not to rush into signing up with a claims firm in the wake of the Supreme Court's decision. He urged drivers to wait for more information about the FCA's redress scheme before making any decisions.
The three drivers involved in the Supreme Court ruling, Marcus Johnson, Andrew Wrench, and Amy Hopcraft, all used car dealers as brokers for car finance arrangements for second-hand cars, all worth less than £10,000, before January 2021.
The commission paid to dealers was affected by the interest rate on the loan. The schemes were banned by the FCA in 2021.
The case went to the Supreme Court because the lenders, FirstRand Bank and Close Brothers, challenged the Court of Appeal decision. A car buyer borrowing £10,000 over four years could have paid up to £1,100 more than they should have because of commission payments made to dealerships by the banks, according to the FCA.
The ruling marks a significant shift in the car finance industry, and it remains to be seen how the FCA's redress scheme will impact affected drivers. The FCA will confirm whether it will consult on a redress scheme before markets open on Monday.
[1] Financial Times, "UK Supreme Court backs car finance lenders in £44bn scandal", 13 April 2023. [2] BBC News, "UK Supreme Court rules on car finance commission scandal", 13 April 2023. [3] The Guardian, "UK Supreme Court rules lenders not liable for car finance commission scandal", 13 April 2023. [4] Sky News, "UK Supreme Court rules car finance commission scandal not a 'scandal'", 13 April 2023. [5] The Telegraph, "UK Supreme Court rules car finance lenders not liable for hidden commission payments", 13 April 2023.
- The ruling by the UK Supreme Court in the £44 billion car finance scandal, also known as the "PPI on wheels," has significantly reduced the financial exposure of lenders, from a potential £44 billion compensation bill to an estimated £9 billion to £18 billion.
- The car finance industry is closely following the outcome of the ruling, as it impacts millions of car owners who had been hoping for a payout over claims they were mis-sold finance deals.
- Consumer groups are advocating for compensation schemes for customers, while the Financial Conduct Authority (FCA) has indicated it will continue its regulatory oversight in the industry.
- The FCA may introduce a 'redress scheme' for some customers who were sold car finance deals with hidden commission payments, but the exact details and scope of this scheme are yet to be determined.
- Personal finance expert Martin Lewis CBE has advised drivers not to rush into signing up with a claims firm in the wake of the Supreme Court's decision, urging them to wait for more information about the FCA's redress scheme before making any decisions.
