Imminent compensations for potentially mis-sold auto financing deals, impacting millions of motorists, are set to be enforced today
The UK Supreme Court has made a landmark ruling in the car finance mis-selling scandal, determining that car dealers receiving commission from lenders without customers' informed consent is unlawful. This ruling follows a case that has been in the courts for some time, with lenders such as FirstRand Bank and Close Brothers challenging the decision [1][2][4].
In the past, it was common for car dealers and brokers to receive a commission from lenders for signing motorists up to car finance deals. This practice, known as a Discretionary Commission Agreement (DCA), could have led to motorists unknowingly paying more for their car loans [3]. For instance, a car buyer borrowing £10,000 over four years could have paid up to £1,100 more due to commission payments made to dealerships by the banks [3].
The Court of Appeal found that such 'secret' commission payments, made before 2021 without the motorist's fully informed consent, were unlawful [4]. However, the Supreme Court ruled that lenders themselves are not liable for hidden commissions, denying millions of drivers compensation payouts directly from the lenders [1][2].
The ruling acknowledged the unfairness of non-disclosure but rejected claims that commissions amounted to bribes or that salesmen owed a fiduciary duty to customers [2]. The potential compensation bill for lenders could hit £44 billion, with some predicting that banks could face compensation bills up to £16 billion, likening the scale to the PPI scandal [3].
Following the ruling, the Treasury is reportedly considering new legislation to limit the compensation fallout and is working with regulators to assess industry impacts [1][2]. Campaigners and MPs emphasize the need for transparency and consumer redress, with the possibility of a mass redress scheme being anticipated soon [2]. This redress scheme might provide automatic compensation without the need for individual claims [2].
Financial advisor Martin Lewis advised consumers not to rush into claims or sign up with claims firms yet, expecting the Financial Conduct Authority (FCA) to announce a consultation on a redress scheme shortly [2]. The FCA could potentially set up an industry-wide redress scheme if it finds widespread harm to consumers as a result of commission payments [5].
The Supreme Court is currently considering an appeal against a Court of Appeal ruling made in October last year, relating to three claimants who had each bought cars on credit [1]. The Exchequer is reportedly considering overruling the court following lobbying by some of the UK's biggest lenders, which could potentially reduce the liability to the detriment of consumers [6].
It's important to note that motorists may have paid £165 million a year in unnecessary fees due to these DCAs [3]. The ruling is expected to have wide implications, with potential compensation and market impact reaching billions of pounds [3]. The Supreme Court is delivering its judgement on the car loan mis-selling scandal today at 4.35pm [1].
[1] The Guardian: "Supreme Court to rule on car finance mis-selling scandal today" [2] BBC News: "Car finance mis-selling: Supreme Court ruling" [3] The Telegraph: "Car finance scandal: Millions of motorists could claim compensation after Supreme Court ruling" [4] The Times: "Supreme Court ruling on car finance deals will not lead to compensation payouts" [5] The Financial Times: "Car finance scandal: FCA to consider industry-wide redress scheme" [6] The Daily Mail: "Car finance scandal: Millions of drivers may miss out on compensation as Treasury considers overruling Supreme Court ruling"
Businesses and financial institutions associated with car finance deals may face significant financial repercussions due to the Supreme Court's ruling on undisclosed commission payments. The potential compensation bill for lenders could reach up to £44 billion, hinting at a situation akin to the PPI scandal.
