Following the Supreme Court’s decision, millions of motor drivers will not be able to claim compensation for the hidden commission paid on car loans.
The Supreme Court of the UK sides in two out of three important test cases with finance companies, focusing on commission payments made by banks and other lenders to car dealers.
The decision reversed the decisions of the court earlier, which had opened the possibility of large-scale compensation claims from motorists on a similar scale as the PPI wrong-scam.
But many drivers who took out a certain type of finance deal can still be in queue for payment. The UK’s Financial Regulatory, which is considering a compensation plan, said “the decision will take time to digest”.
The Supreme Court heard three cases in a joint appeal, which was brought by two lenders Firstrand Bank and close brothers.
Lenders were challenging the court of the appeal decision, which found that it was illegal for car dealers to get hidden commissions from lenders when they signed up to customers for motor finance before 2021.
That decision kept millions of motorists in queue for compensation as to how their car loan interest rate was fixed, and lenders were potentially exposed to pay billions of pounds.
Seeing the court’s decision, Lord Reid said that the motorists had argued that the dealers had a duty duty – a liability to keep the needs of the customer on themselves – but the court disagreed.
Lord Reid said, “At any point the dealer did not give the customer any kind of express undertaking or assurance that it was separating his own business interest as a seller in finding a suitable credit deal.”
The court ruled against the lender in a case.
It was stated in the case of Marcus Johnson that the dealer was paid was so important – 55% of the total fees or credit including interest and fees – this was a “powerful sign”. The relationship between Mr. Johnson and the lender Firstrand was unfair.
The Supreme Court honored Mr. Johnson with a commission plus interest amount.
Speaking after the verdict, Mr. Johnson said that he was “happy for himself, but not for hundreds of others” who would remember.
“It’s strange,” he said. “This is a win, but it is a large bag of salt to go with it”.
According to FCA, about two million new and used cars were purchased every year under motor finance, or about nine in 10.
While the scope of compensation claims to be made at the industry-wide level has been compressed, there are many who can receive payments.
Four of the 10 cars sold before 2021 were sold through a restricted method called the system of the discretionary commission.
Financial Watchdogs of the UK, Financial Conduct Authority (FCA), were investigating complaints from motorists about these arrangements.
Under these deals, car dealers were paid more in commission if they get high interest rates on the loan. Practice has been banned since 2021.
Following the Supreme Court’s decision, a partner in Richard Barnwell Advisory firm BDO, said that some people affected by the discretionary commission’s system can qualify for prevention.
“If the discretionary commissioning system is considered an inappropriate relationship, the prevention may still be £ 5 – £ 13 billion or more,” said Mr. Barnwell.
Money Saving Expert founder Martin Lewis said that he believes that compensation payment could be £ 10bn and that will be there “Gobsmacked” if there was no plan for DCA payment.
He said, “I will expect greatly to look at the regulator, FCA, there is a consultation for the arrangement of discretionary commission, and possibly mentioned in this new category, which has been retained by the Supreme Court, about the arrangement of excessive commission,” he said.
The FCA has stated that it will confirm “Will we consult on a prevention plan before the markets open on Monday 4 August”.
“We want to bring more certainty as soon as possible for consumers, firms and investors,” said this.
Alex Neil, co-founder of the Consumer Rights Group Consumer Voice, said it was a “disappointing” decision, but welcomed the fact that the court had “clarified where consumers were prevented”.
“The financial regulator now should now work immediately to start a prevention plan that ensures that the drivers get back what they are outstanding,” he said.
But Director General of Finance and Legend Association, Stephen Hadril said that the decision was “an excellent result”, which in the car market “restored certainty and clarity”.
A spokesman for the treasury said that the government “respected the decision” and it would “work with regulators and industry to work for businesses and customers”.
