Millions of motorists will be unable to seek compensation for undisclosed commissions on car loans, following a recent Supreme Court ruling.
The UK’s highest court has sided with finance companies in two out of three key test cases concerning commission payments from banks and credit providers to car dealerships.
This decision overturns previous rulings by the Court of Appeal, which had suggested the possibility of widespread compensation claims akin to the Payment Protection Insurance (PPI) mis-selling scandal.
Lord Reed, in delivering the judgment, stated that car dealers “plainly and properly” had a vested interest in profiting from these transactions.
“At no point did the dealer give any kind of express undertaking or assurance to the customer that in finding a suitable credit deal it was putting aside its own commercial interest as seller,” Lord Reed added.
However, the court ruled against the lender in the case of Marcus Johnson, citing the significant commission paid to the dealer – 55% of the total credit charge, including interest and fees – as a “powerful indication” of an unfair relationship between Mr. Johnson and lender FirstRand.
Following the decision, Mr. Johnson expressed his mixed feelings, stating he was “pleased for myself, but not for the hundreds of others” who will be affected.
“It’s weird,” he said. “It’s a win, but it’s a really big bag of salt to go with it.”
The Supreme Court heard three cases in the joint appeal, brought by lenders FirstRand bank and Close Brothers.
The lenders challenged a Court of Appeal ruling that deemed it unlawful for car dealers to receive hidden commissions from lenders when arranging motor finance for customers before 2021.
That ruling potentially opened the door for millions of motorists to claim compensation, depending on how their car loan interest rates were determined, exposing lenders to billions in potential payouts.
Reacting to the judgement, equity lawyer and Oxford University academic Dr Julius Grower said: “The strongest possible win for the lenders was this outcome and they got it.”
According to Richard Branwell, a partner at advisory firm BDO, some motorists might still be eligible for redress under a now-prohibited arrangement known as discretionary commission arrangements (DCA).
These finance deals involved car dealers receiving higher commissions for securing higher interest rates on loans, a practice banned since 2021.
“If discretionary commission arrangements are deemed to be an unfair relationship, redress could still be from to £5 – £13 billion or more,” Mr Branwell said.
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