Millions set to miss out on car finance compensation after Supreme Court ruling
The ruling in October last year found three motorists, who all bought their cars before 2021, should receive compensation after they were not told either clearly enough or at all that the car dealers, acting as credit brokers, would receive a commission from the lenders for introducing business to them.
But in a decision on Friday, justices at the UK's highest court overturned the Court of Appeal, though some customers could still receive payouts by bringing claims under the Consumer Credit Act (CCA).
Lawyers for the lenders told the Supreme Court at a three-day hearing in April the decision was an 'egregious error', while the Financial Conduct Authority intervened in the case and claimed the ruling 'goes too far'.
The three drivers, Marcus Johnson, Andrew Wrench and Amy Hopcraft, opposed the challenge.
Giving a summary of the Supreme Court's ruling on Friday, Lord Reed, one of five justices who heard the case, said they had allowed the lenders' appeals.
He said: 'Each party to the three-cornered arrangement – the customer, the dealer and the finance company – was engaged at arm's length from the other participants in the pursuit of their own objectives.'
However, the judges upheld a claim brought by Mr Johnson under the CCA that his relationship with the finance company had been 'unfair', awarding him the commission amount of £1,650.95 plus interest.
In their full 110-page judgment, Lords Reed, Hodge, Lloyd-Jones, Briggs and Hamblen said that car dealers did not have a relationship with their customers that would require them to act only in the customers' interest.
They said: 'An offer to find the best deal is not the same as an offer to act altruistically.'
Following the ruling, a Treasury spokesperson said: 'We 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.
'We recognise the issues this court case has highlighted. That is why we are already taking forward significant changes to the Financial Ombudsman Service and the Consumer Credit Act.
'These reforms will deliver a more consistent and predictable regulatory environment for businesses and consumers, while ensuring that products are sold to customers fairly and clearly.'
In a statement, Close Brothers said: 'Close Brothers is considering the Supreme Court's judgment and will make any further announcements as and when appropriate.'
In a letter to the Supreme Court in December last year, the FCA said almost 99% of the roughly 32 million car finance agreements entered into since 2007 involved a commission payment to a broker.
Mr Johnson, Mr Wrench and Ms Hopcraft all used car dealers as brokers for car finance arrangements for second-hand cars, all worth less than £10,000, before January 2021.
Only one finance option was presented to the motorists in each case, with the car dealers making a profit from the sale of the car and receiving commission from the lender.
The commission paid to dealers was affected by the interest rate on the loan.
The schemes were banned by the FCA in 2021, with the three drivers taking legal action individually between 2022 and 2023.
Ms Hopcraft, then a student nurse, bought her replacement car in 2014 through an agreement with Close, which paid the car dealership £183.26 in commission.
Mr Wrench, described by the Court of Appeal as a 'postman with a penchant for fast cars', entered into two hire-purchase agreements for an Audi TT coupe and a BMW 3 Series, with FirstRand, in 2015 and 2017, respectively, paying hundreds in commission in total.
Mr Johnson, then a factory supervisor, was buying his first car in 2017 and paid the £1,650.95 in commission as part of his finance agreement with FirstRand for the Suzuki he purchased.
After the claims reached the Court of Appeal, three senior judges ruled the lenders were liable to repay the motorists the commission due to the lack of disclosure about the payments.
Lady Justice Andrews, Lord Justice Birss and Lord Justice Edis said last year that while each case was different, 'burying such a statement in the small print which the lender knows the borrower is highly unlikely to read will not suffice'.
But in Friday's Supreme Court judgment, the five justices said: 'No reasonable onlooker would think that, by offering to find a suitable finance package to enable the customer to obtain the car, the dealer was thereby giving up, rather than continuing to pursue, its own commercial objective of securing a profitable sale of the car.'
They continued: 'We conclude that, to the extent that the Court of Appeal's judgment and the respondents' case depends upon the recognition of a fiduciary obligation of undivided loyalty on the part of the dealer when selecting and negotiating a finance package for the customer, they are wrong.'
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Times
3 hours ago
- Times
How drivers were sold a car finance compensation fantasy
Britain has narrowly avoided a costly car finance compensation free-for-all after a landmark court ruling derailed chances of a payout for millions of drivers. Claims lawyers had been bombarding consumers with adverts suggesting they may have been entitled to thousands of pounds in a scandal over hidden commission on car finance deals. The scandal had been expected to rival the mis-selling of payment protection insurance, which cost banks more than £38 billion. It was thought that nearly 15 million drivers could be entitled to payouts worth as much as £44 billion in total — although Friday's Supreme Court ruling means the numbers are set to be far smaller. Questions have now been raised over whether those using car finance really lost out and how many of them deserve compensation at all. The chancellor, Rachel Reeves, had tried to intervene ahead of the ruling — arguing that a colossal compensation bill for the industry would damage the economy and consumers. The Supreme Court ruled on three cases where consumers bought cars on finance and argued that they had been treated unfairly because they had not been told about commission involved in their deals — which ranged from £183 to £1,651. The court rejected two of the three cases, but upheld a complaint by Marcus Johnson, a factory worker from south Wales — because in his case the £1,651 commission in his loan was 55 per cent of the fee (including interest) on his loan over five years. 'The fact that the undisclosed commission was so high is a powerful indication that the relationship between Mr Johnson and the lender was unfair,' the court's judgment said. It leaves the door open to claims for compensation on deals that contained large amounts of commission, or where the commission model influenced what they paid. 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Glasgow Times
7 hours ago
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Drivers should be ‘very pessimistic' over car finance claims, say lawyers
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BBC News
9 hours ago
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Car finance judgement 'a hard pill to swallow'
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