Lenders do not owe millions compensation over car finance, Supreme Court rules
The UK's highest court ruled that car dealers did not have a relationship with their customers that would require them to act 'altruistically' in the customers' interest.
The decision comes after two lenders, FirstRand Bank and Close Brothers, challenged a Court of Appeal ruling which found 'secret' commission payments, paid by buyers to dealers as part of finance arrangements made before 2021, without the motorist's fully informed consent, were unlawful.
The ruling in October last year found that 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.
On Friday, Lords Reed, Hodge, Lloyd-Jones, Briggs and Hamblen ruled that car dealers did not have a relationship with their customers that would require them to act only in the customers' interest, and that the Court of Appeal was wrong.
But they said that some customers could still receive payouts by bringing claims under the Consumer Credit Act (CCA).
The Financial Conduct Authority (FCA) said it will confirm by Monday whether it will consult on a redress scheme, while one of the three drivers said he was 'dumbfounded' by the ruling.
Handing down the judgment, Lord Reed said the car dealer 'was at all times pursuing its own commercial interest in achieving a sale of the car on profitable terms'.
He continued: 'In reaching the opposite conclusion, the Court of Appeal failed to understand that the dealer has a commercial interest in the arrangement between the customer and the finance company.
'The court mistakenly treated the dealer as acting solely in the interests of the customer once the customer had chosen a car and agreed a price.'
The FCA, which intervened in the case, previously said it would set out within six weeks whether it would consult on a redress scheme.
But a spokesperson said after the ruling that it would confirm whether it will consult on any such scheme by 8am on Monday 'to provide clarity as quickly as possible'.
Lord Reed said the Supreme Court had decided to deliver its ruling on a Friday afternoon, outside of trading hours and after the markets had closed for the weekend, to avoid the risk of 'market disorder'.
The three drivers involved in the case, Marcus Johnson, Andrew Wrench and Amy Hopcraft, all used car dealers as brokers for car finance arrangements for second-hand cars worth less than £10,000 before January 2021.
Only one finance option was presented to the motorists in each case, the car dealers made a profit from the sale of the car and received 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, and the three drivers took legal action individually between 2022 and 2023.
After the claims reached the Court of Appeal, three senior judges ruled the lenders were liable to repay the motorists the commission because of the lack of disclosure about the payments.
Lawyers for the lenders told the Supreme Court at a three-day hearing in April that the decision was an 'egregious error', while the FCA claimed the ruling went 'too far'.
In their 110-page judgment, the five Supreme Court justices found that 'an offer to find the best deal is not the same as an offer to act altruistically'.
They 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.'
However, the judges upheld a claim brought by Mr Johnson under the CCA that his relationship with the finance company had been 'unfair'.
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.
The Supreme Court ruled he should receive the commission and interest, which Mr Johnson told the PA news agency totalled 'just over £3,000'.
Mr Johnson said that he was 'dumbfounded' by the ruling, which he said 'does not sit right with me'.
He said: 'I am obviously happy that my case was successful, but for so many other people that were also overcharged, I just don't like the message it sends to the UK consumer.'
He said the ruling 'sounds like it's fine to secretly overcharge customers for commission'.
A Treasury spokesperson said it would work to 'understand the impact for both firms and consumers'.
They said: '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.'
Close Brothers said it was 'considering' the judgment and 'will make any further announcements as and when appropriate'.
Kavon Hussain, founder and lawyer at Consumer Rights Solicitors, which represented Ms Hopcraft and Mr Wrench, said it was 'disappointing' the Supreme Court did not fully uphold the Court of Appeal's ruling.
He said: 'The Supreme Court ruling supports our view that lenders had acted unfairly in millions of car finance deals.
'This should now pave the way for the biggest compensation payout to motorists in British legal history.
'We will fight to get consumers the money they are owed by these lenders.'
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Guardian
an hour ago
- The Guardian
EU-US trade deal hits investor confidence; Tesla awards Elon Musk $30bn of shares
Update: Date: 2025-08-04T12:23:24.000Z Title: Boom! Shares in lenders exposed to the UK car finance scandal have surged at the start of trading in London, as', 'investors react to Friday night's supreme court ruling. Content: Rolling coverage of the latest economic and financial news, as shares in Lloyds and Close Brothers jump Millions in line for payouts from £18bn car loan compensation scheme Graeme Wearden Mon 4 Aug 2025 14.23 CEST First published on Mon 4 Aug 2025 08.18 CEST From 9.13am CEST 09:13 Boom! Shares in lenders exposed to the UK car finance scandal have surged at the start of trading in London, as investors react to Friday night's supreme court ruling. Shares in Close Brothers jumped 27% after the stock market opened, after the court ruled in its favour in a case over car finance. Close Bros are leading the FTSE 250 index of medium-sized companies. Lloyds Banking Group is leading the larger FTSE 100 share index – its shares have jumped by almost 6% in early trading. As flagged earlier, Lloyds had previously set aside £1.2bn to cover compensation claims over car finance commissions paid to car dealers. These share price moves are a clear sign that the Supreme court ruling is a win for the lenders, even though the FCA is now consulting on a compensation scheme for motorists. That's because the FCA estimates the cost of its scheme will be between £9bn and £18bn. Before the supreme court overturned two of the three rulings against the industry, lenders were facing an estimated bill of £44bn. Updated at 9.17am CEST 2.23pm CEST 14:23 Today's $30bn share award won't be the end of the discussions about Elon Musk's pay. In their letter to shareholders, Robyn Denholm and Kathleen Wilson-Thompson explain that the Tesla board's special committee will continue its work on 'a longer-term CEO compensation strategy'. They intent to put this plan to a shareholder vote at Tesla's annual meeting on 6 November. 1.50pm CEST 13:50 Shares in Tesla have risen by over 2% in pre-market trading – a sign that Wall Street approves of Musk's new share package. They've risen by 2.3% to $309 per share, up from $302 on Friday night, which will lift the value of Musk's 96m share package closer to $30bn. Investors may well be reassured that today's share package will keep Musk at Tesla, as the shares will vest in two year's time. 1.24pm CEST 13:24 Customer loyalty towards Tesla across America has plunged since CEO Elon Musk endorsed President Donald Trump last summer, according to data from research firm S&P Global Mobility. The data shows Tesla's customer loyalty peaked in June 2024, when 73% of Tesla-owning US households in the market for a new car bought another Tesla, Reuters reports Brand loyalty rate started to nosedive in July, the month when Musk endorsed Trump. The rate bottomed out at 49.9% last March, after Musk launched the Department of Government Efficiency in January and started firing thousands of government workers. S&P analyst Tom Libby called it 'unprecedented' to see the runaway leader in customer loyalty fall so quickly to industry-average levels, adding: 'I've never seen this rapid of a decline in such a short period of time.' Tesla's US loyalty rate has since ticked back up to 57.4% in May. But even so, this does raise the question about whether Musk really deserves $30bn of shares…. 1.11pm CEST 13:11 Gwyn Topham Eurostar passengers travelling and from Paris face long delays and cancellations after a power failure on the high-speed rail line north of the French capital. The cross-Channel train operator warned that trains between London and Paris and Brussels and Paris would be disrupted throughout Monday. It said trains were still running but had been rerouted via slower rail lines, adding up to two hours to departures on Monday morning. A number of afternoon services have been cancelled. The latest disruption comes during peak holiday season, on the main rail route from Britain to the continent. Eurostar said it advised passengers to postpone their journey if possible, and exchange their ticket free of charge or request a full refund. It said extra staff had been deployed in the stations to assist passengers. 12.50pm CEST 12:50 Just in: Tesla has awarded Elon Musk stock options worth almost $30bn, in its latest attempt to pump up the billionaire's pay packet, and keep him at the company. Tesla had announced that is has approved an award of 96 million shares of restricted stock to CEO Musk, under its 2019 Equity Incentive Plan. At Tesla's latest share price, $302, the shares would be worth $29bn. Musk would have to pay just $23.34 per share to get them, which would cost him around $2bn. This follows the blocking off Musk's massive, $56bn, pay packet by a Delaware judge. If the Delaware pay deal is reinstated (there's an appeal to Delaware's Supreme Court), these new share options will by immediately forfeited, Tesla add (a sign that it is an attempt to get Musk at least part of that offer). Robyn Denholm and Kathleen Wilson-Thompson, members of the special committee of the Tesla's board of directors, told shareholders that it was 'imperative to retain and motivate our extraordinary talent, beginning with Elon'. In a letter to shareholders, they added: We would also like to stress that prior to recommending this award, we reviewed your letters, read your X posts, and considered the direct feedback we have received from many of you in order to align our recommendation with your expressed views. From those communications, we know that one of your top concerns is keeping Elon's energies focused on Tesla. This award is a critical first step toward achieving that goal, although it is limited by the capacity of our current equity incentive plan. As such, we are also working on next steps to address that issue. Still, while our work remains ongoing, we feel it is important to communicate directly and transparently with you all, our shareholders and Tesla's owners. Updated at 12.56pm CEST 12.03pm CEST 12:03 The Swiss franc has weakened again this morning, adding to Friday's losses, as traders anticipate steep tariffs on Switzerland's goods at the US border. The euro has climbed by almost 0.5% against the swiss franc, to 0.9355CHF. Raffi Boyadjian, lead market analyst at Trading Point, says: Many investors remain hopeful that some of the steep tariffs announced last week will be renegotiated and reduced. For example, reports suggest that Canadian Prime Minister Mark Carney will meet with Trump later this week to potentially reach a deal that would bring down the 35% levy on Canadian imports into the US. The Canadian dollar is unchanged versus the greenback today, but the Swiss franc is tumbling following the White House's decision to slap 39% tariffs on Switzerland – something not expected by the Swiss government. The yen, meanwhile, enjoyed a revival in its safe-haven status during Friday's risk-off trading, although it is paring those gains today, with the dollar rebounding to just below 148 yen. 11.39am CEST 11:39 Jean-Philippe Bertschy, an analyst at Vontobel, has warned that 39% tariffs on Swiss exports to the US would be 'devastating for numerous brands in Switzerland.' 11.27am CEST 11:27 Eurozone August Sentix -3.7 (est +6.9, last +4.5) A bit of surprise from Sentix who is, however, just a survey of analysts. The index's setback suggests still a sub-50 Composite PMI and while I don't read too much into today's data, it confirms that recovery remains fragile. 10.50am CEST 10:50 Investor sentiment in the euro zone has taken a tumble, as the EU-US trade deal annnounced a week ago dampened confidence. Data provider Sentix's latest confidence gauge found that investors are not impressed by the EU's latest tariff deal with the US. The survey of 1,050 investors, conducted from July 31 to August 2, found a decline in the current economic situation, and also in future expectations. It also found a slump in confidence about the Swiss economy, after Donald Trump announced Switzerland will face a 39% tariff – much higher than the EU's 15%. Sentix reports: The latest data from the 'first mover' provides investors' initial assessment of the EU-US tariff deal. And the result is devastating for the eurozone. The sentix economic index has fallen significantly to -3.7 points. The current situation and expectations are both declining. The wrinkles of concern in the economy are deepening again. Even German Chancellor Friedrich Merz, who recently raved about a turnaround in the economy, has been proven wrong: the Germany index has collapsed by more than 12 points to -12.8 points. Donald Trump and the US are the winners in the current figures. Advance effects are the main factor pumping up the situation figures. However, expectations are also falling in the US to -7.8 points. Investors are particularly harsh on the Swiss economy. The sentix economic index has slumped by a full 21.2 points here. Sentix managing director Manfred Huebner says: 'The tariff agreement is proving to be a real mood killer.' Updated at 10.53am CEST 10.43am CEST 10:43 Swatch group chief executive Nick Hayek has called on Swiss President Karin Keller-Sutter to meet US President Donald Trump in Washington to negotiate a better deal than the 39% tariffs announced on Swiss imports into the United States. Hayek told Reuters on Monday he was confident an agreement could still be reached before the tariffs, which were announced on Friday, went into effect on August 7. Hayek said: 'Karin Keller-Sutter is the boss of the Swiss government, she is the president. She should take the plane and go to Washington. That would increase the chances of a deal enormously. 'It's not doomsday. Of course a settlement can be reached. Why would Donald Trump say tariffs are coming on August 1 and not implement them until the 7th? The door is always open.' 10.42am CEST 10:42 The Swiss stock market has tumbled into the red after Donald Trump shocked Switzerland by announcing a 39% tariff on its imports to the US. The Swiss Main Index (SMI) is down over 1%, after losing almost 2% at the start of trading. The market had been closed on Friday for a public holiday, so this is Zürich traders' first opportunity to react. Most stocks are in the red, including pharmaceuticals firm Roche (-1%), luxury goods maker Richemont (-0.8%), and bank UBS (-1.8%). Economists have warned that the tariffs would have a serious impact on the export-oriented Swiss economy, increasing the risk of recession. 10.23am CEST 10:23 South Africa's FirstRand has said it may need to update its accounting provisions after Friday's supreme court ruling on motor finance claims, potentially pushing the lender's annual earnings growth towards the lower end of its forecast. It told shareholders: On 11 December 2024, FirstRand Bank London Branch obtained permission from the Supreme Court to appeal the UK Court of Appeal's judgment against it in respect of the Wrench and Johnson motor finance commissions cases. The appeal was heard by the Supreme Court between 1 April 2025 and 3 April 2025. FirstRand welcomes the clarity provided by the judgment. FirstRand Bank London Branch's main ground of appeal (that car dealers do not owe their customers a fiduciary duty) was upheld, and it is important to note that the successful ground was the most important and substantive issue that required the Supreme Court's consideration following last year's UK Court of Appeal ruling. The company had earlier expected to deliver full-year earnings growth in the low double-digit to mid-teens range, Reuters reports. Shares in FirstRand are up 4.7% this morning, on the Johannesburg stock exchange. Updated at 10.31am CEST 10.02am CEST 10:02 The trade body for the motor finance sector has criticised the Financial Conduct Authority for proposing to backdate its compensation scheme to 2007. Stephen Haddrill, director general of the Finance & Leasing Association, told Radio 4's Today programme that while it 'makes sense' to have a compensation schem, there rae 'major concerns' about the time limit. Haddrill argued: I just think it's completely impractical. It's not simply firms that don't have the details about contracts back then, customers don't either.
The Guardian
an hour ago
- The Guardian
Who will get a car loan scheme payout and how much might they receive?
Millions of people are in line for payouts after the City regulator announced on Sunday that it would launch a compensation scheme for people affected by the car finance scandal. Here we explain who might be eligible, how much they might receive and what they need to do. On Friday the supreme court largely overturned last October's court of appeal ruling on car finance that could have led to compensation payouts of up to £44bn. The Financial Conduct Authority (FCA) set out its plans for a redress scheme 48 hours later, saying it would consult on a scheme covering loans dating back to 2007, with estimates putting the total cost to lenders at between £9bn and £18bn. It's partly because the FCA has been running its own investigation into so-called discretionary commission arrangements (DCAs), a particularly controversial type of car finance. With these deals, motor finance lenders – typically banks – gave dealers the power to set interest rates on car loans, with dealers getting more commission the higher the interest rate. This practice, which allegedly incentivised dealers to overcharge customers, was banned by the FCA in 2021. Given the regulator's concern, it was always likely that many DCA cases were going to be in line for compensation; about 14.6m contracts included this arrangement between 2007 and 2020. The FCA is proposing that the compensation scheme covers DCAs 'if they were not properly disclosed', – believed to be the case for the vast majority of the loans. However, the supreme court also upheld one of the three test cases on Friday – not a DCA one – deeming it 'unfair'. This was due to the size of the commission paid to the car dealer – a particularly large 55% of the total cost of the credit (in other words, the interest and fees) – and a failure to explain the structure of the deal clearly enough in documents provided to the customer. The FCA said that that court decision 'makes clear that non-disclosure of other facts relating to the commission can make the relationship unfair'. Many people, therefore, who signed car finance deals between 2007 and 2024 whose agreement did not include a DCA may still be in line for a payout if there are unfair elements. However, this potential payout will depend on the facts of each case. Clearly a large commission could be a factor, and others will be how financially literate the borrower was when they signed the contract, and how much information was provided to them. The regulator will start consulting on the scheme by early October. The consultation is due to take six weeks and the FCA aims to finalise the scheme 'in time for people to start receiving compensation next year'. People who have already complained do not need to do anything as they should be 'in the system'. For the rest, the FCA says: 'Consumers concerned they were not told about commission and who think they may have paid too much for the finance should complain now.' The MoneySavingExpert website has free tools that create an email for you to send to the relevant lender based on your answers to a few key questions. Or you can complain yourself. It is free and simple, the FCA says. You will need to complain to the company you were paying each month, and ideally do it in writing. Complaining now gives the company concerned a chance to track down your information, and if there is a problem it is probably better to know now rather than later. The short answer? No. Claims management companies and consumer law firms have been touting for business for some time, and appear to be ramping up their efforts to encourage people who may have lost out to sign up. But the FCA and Solicitors Regulation Authority (SRA) are concerned that some firms are not telling consumers about free alternatives, are making bold and sometimes misleading claims about payouts, and are charging fees worth up to 30% of any compensation. Nikhil Rathi, chief executive of the FCA, said: 'Our aim is a compensation scheme that's fair and easy to participate in, so there's no need to use a claims management company or law firm. If you do, it will cost you a significant chunk of any money you get.' The FCA estimates 'most individuals will probably receive less than £950 in compensation'. It has previously said that in the case of loan agreements that included a DCA, consumers may have been overcharged by £1,100, as a result of paying too much interest on a typical £10,000, four-year car finance deal. Some claims law firms have said some clients were charged much more, amounting to several thousand pounds in hidden commission. Also, because the FCA thinks that the scheme should cover agreements dating back to 2007, there will be people who bought several cars during this period, who may be entitled to multiple payouts. However, the FCA has indicated that it would need to balance the interests of consumers, firms and the broader economy when setting up a scheme. Presumably, that may mean people might not get back all of their 'loss'. That said, any amount people get is likely to be boosted by interest, which could add up to a reasonable amount if it is several years' worth. The FCA said it planned to consult on an interest rate for each year of the scheme based on the average Bank of England base rate that year, plus 1%. 'This would be in the ballpark of a simple [ie, not compound] interest rate of 3% per annum,' it said. Yes, this is a concern, as it is thought that most banks typically purge customer data after six years. The FCA ordered firms to stop deleting car finance documents when it launched its initial investigation in January last year. But the files relating to customers with contracts that ended more than six years earlier may have already been lost. The Financing and Leasing Association, which represents leading car loan providers, said: 'We have concerns about whether it is possible to have a fair redress scheme that goes back to 2007 when firms have not been required to hold such dated information, and the evidence base will be patchy at best. We will be interested to see how the FCA addresses this point in its consultation.' However, many people will have kept their paperwork. During the payment protection insurance (PPI) scandal, banks were urged to err on the side of consumers, even when there was no documentation, but it is not yet clear if this will happen with car loans.
North Wales Chronicle
an hour ago
- North Wales Chronicle
Motor finance: Concerns raised that some firms' records may be ‘patchy at best'
Stephen Haddrill, director general of the Finance and Leasing Association (FLA) said: 'We have concerns about whether it is possible to have a fair redress scheme that goes back to 2007 when firms have not been required to hold such dated information, and the evidence base will be patchy at best. 'We will be interested to see how the FCA (Financial Conduct Authority) addresses this point in its consultation.' On Sunday, the FCA said it will consult on an industry-wide compensation scheme. The regulator said many motor finance firms were not complying with rules or the law by not providing customers with relevant information about commission paid by lenders to the car dealers who sold the loans. The FCA said it will propose rules on how lenders should consistently, efficiently and fairly decide whether someone is owed compensation and how much. It estimates that most people will probably receive less than £950 in compensation. The consultation will launch by early October and if the compensation scheme goes ahead, the first payments should be made in 2026, the regulator has said. Speaking on BBC Breakfast, Nikhil Rathi, chief executive of the FCA said: 'We're going to have to work through those issues in the consultation where one or the other party doesn't have all the details. 'That is one of the challenges here.' Mr Rathi told the BBC: 'My message to the industry is – work with us, help us find solutions to some of these issues and don't try and haggle on every single point. If we want to get this up and running, get trust back into this market, let's get moving now and sort this out in the consultation.' The Financial Ombudsman Service (FOS) can already look at complaints going back to 2007. The FCA has said that people who have already complained do not need to do anything. Consumers who are concerned that they were not told about commission and think they may have paid too much for their motor finance lender should complain now, it has said. The regulator has said that people do not need to use a claims management company or law firm and doing so could cost them around 30% of any compensation paid.
