Drivers should be ‘very pessimistic' over car finance claims, say lawyers
Industry analysts also said on Friday that banks will 'breathe a sigh of relief' after the Supreme Court ruled they are not liable for hidden commission payments in car finance schemes.
Nevertheless, the financial watchdog has said it is still considering whether to launch a redress scheme for consumers who potentially receive compensation.
Lawyers have also indicated that some consumers should still consider pursuing their claims over 'unfair' treatment.
We welcome that the Supreme Court has clarified the law. We want to provide clarity as quickly as possible. So we'll confirm whether we will consult on a redress scheme before markets open on Monday 4 August. https://t.co/xlWulkOyEj pic.twitter.com/GrCuk1dFk8
— Financial Conduct Authority (@TheFCA) August 1, 2025
Two lenders, FirstRand Bank and Close Brothers, went to the UK's highest court to challenge a Court of Appeal ruling which found 'secret' commission payments paid by buyers to car dealers in agreements before 2021 without the motorist's fully informed consent were unlawful.
The ruling last year found three motorists, who all bought their cars before 2021, should receive compensation.
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'.
However, the judges upheld a claim brought by one driver under the CCA that his relationship with the finance company had been 'unfair', awarding him the commission amount of £1,650.95 plus interest.
Lizzy Comley, chief operating officer of consumer law firm Slater and Gordon, said the ruling still reinforces the right of many consumers to pursue claims.
Following today's Supreme Court decision regarding the mis-selling of car finance, Slater and Gordon's, Elizabeth Comley, has issued the following statement. Read the statement in full on our website: https://t.co/ec2WpUMOWg pic.twitter.com/X08oT7GfuE
— Slater and Gordon UK (@SlaterGordonUK) August 1, 2025
She said: 'This landmark ruling is positive news for the millions of people who have lost money due to the car finance mis-selling.
'The court confirmed that for years, consumers have potentially been unfairly overcharged on car finance agreements, and this ruling reinforces their right to pursue justice and recover the compensation they deserve.'
However, others have said that the ruling will make it harder for most claims.
Nicola Pangbourne, partner at Kennedys law firm, said: 'If I was a driver, I would be very pessimistic about getting compensation. There's now quite a few hurdles they've got to get through.'
Industry experts have suggested the ruling will be broadly seen as a success for lenders, who had been preparing for significant compensation payments.
Caroline Wayman, global head of financial Services at PA Consulting, said: 'Lenders will breathe a sigh of relief at the ruling, but it should still be a wake-up call for firms to scrutinise any large, undisclosed commissions in their business.
'Firms should ask themselves whether it still feels justifiable or could be considered unfair, particularly if they haven't disclosed commercial ties to the broker and it won't be enough to expect customers to have read and understood the fine print.'
On Friday, a spokesperson for the Financial Conduct Authority said after the ruling that it would confirm whether it will consult on any such scheme by 8am on Monday.
They said: 'We want to bring greater certainty for consumers, firms and investors as quickly as possible.'
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The Guardian
4 hours ago
- The Guardian
Chancellor's attempt to intervene in car finance scandal branded ‘disgraceful'
Rachel Reeves' efforts to intervene in the supreme court case on the car finance scandal were 'unprecedented and disgraceful' and send a 'really bad message' to consumers that the government is willing to defend wrongdoing by banks, Treasury committee member and Lib Dem MP Bobby Dean has said. While the supreme court largely sided with finance companies on Friday – helping lenders avoid a £44bn compensation bill – Dean said the chancellor had gone too far to show she was on the side of business. That included a controversial bid to intervene in the supreme court hearing in January, in which she urged judges to avoid handing 'windfall' compensation to borrowers. That attempt was ultimately rejected. 'I thought it was pretty unprecedented and pretty disgraceful,' said Dean, who sits on an influential parliamentary committee which scrutinises City firms, regulators and the Treasury. The chancellor had also been considering overruling the supreme court's decision with retrospective legislation, to help save lenders billions of pounds, in the event that it upheld the entirety of October's court of appeal ruling, the Guardian revealed last week. 'What message does it send to consumers that the industry can do wrong, the courts can support the claim that they've done something wrong, but the government is ready to intervene and defend the industry that's done wrong, instead of defending the consumer? I think that's a really bad message to put out,' Dean said. 'I feel like this government sometimes is too keen to demonstrate it is on the side of business, and is sometimes not understanding the rights of consumer,' he added. Reeves intervention efforts followed intensive lobbying by the car loan industry, which feared that the supreme court would uphold last October's shock ruling by the appeal court. That October ruling suggested commission payments paid by lenders to car dealers were unlawful, unless explicitly disclosed to borrowers. It could have opened the door to billions of pounds of compensation claims against companies including Lloyds Banking Group, Santander UK, Barclays and Close Brothers, and result in a redress scheme that rivalled the £50bn payment protection insurance saga. Lobby group the Financing and Leasing Association (FLA) – which represents car lenders – had warned the government that a big compensation bill could push some lenders into failure, while others would offer fewer or more expensive loans to claw back their losses. That could restrict options for borrowers who relied on credit. City bosses were also warning the Treasury that ongoing uncertainty over the scandal was deterring international investment in the finance industry, and was therefore putting the UK's economic growth at risk The FLA's head of motor finance Adrian Dally said that the lobby group was 'pleased' with the supreme court's ruling, and felt its concerns had been heard by Treasury and regulators. He confirmed the FLA had been speaking with the Treasury nearly every week in the wake of the court of appeal ruling in October, including about its concerns on the car finance case. However, he rejected suggestions the Treasury had prioritised the industry over consumers. 'We absolutely disagree with that because, ultimately, this [car finance] industry is a vital part of the nation's infrastructure, and enables millions of people to get to work, to get to school, and that was put at risk by these court cases. And ultimately, we believe the industry's interests and the consumers' interests are aligned on this.' Sign up to Business Today Get set for the working day – we'll point you to all the business news and analysis you need every morning after newsletter promotion But Dean said government interventions set a 'really bad precedent if you're going to intervene on cases of consumer redress on the basis that it might damage industry, because then almost every consumer redress case would fall,' Dean said. Dean added that compensation schemes can give consumers confidence to borrow and invest, knowing will be protected when companies take advantage of customers. 'Obviously, the best industry is one where these redress systems are not needed in the first place, because people play by the rules.' The Financial Conduct Authority is due to confirm whether or not it will press ahead with a compensation scheme before the stock markets open on Monday morning. A Treasury spokesperson said: 'It is vital that consumers have access to motor finance to enable them to spread the cost of a vehicle in a way that is manageable and affordable. 'We respect this judgment from the supreme court, and we are working with regulators and industry to understand the impact for both firms and consumers. 'We recognise the issues this court case has highlighted, and we are already taking forward significant changes to the Financial Ombudsman Service and the Consumer Credit Act.'
The Independent
6 hours ago
- The Independent
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Times
15 hours ago
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The Court of Appeal had ruled in October that car dealers had a duty to make clear the nature and value of any commission paid to them to ensure that borrowers could give 'informed consent' before agreeing to a deal. Reeves was among those concerned about a claims free-for-all, with the Treasury reportedly drawing up contingency plans to shield lenders from having to pay out billions of pounds in compensation. The Treasury attempted to intervene in the Supreme Court case, arguing that a ruling had 'the potential to adversely affect the United Kingdom's reputation as a place to do business, with a consequent impact on economic growth'. In the meantime complaints about car loans to the Financial Ombudsman Service (FOS), a body that solves disputes, have risen from 4,130 in the first three months of 2023-24 to 37,230 in the last three months of 2024-25. Most of these have been brought by claims companies and no-win, no-fee law firms that file complaints on behalf of consumers in return for up to 30 per cent of any compensation. These companies have swamped radio, social media and television with adverts that tell consumers they could be owed thousands of pounds. On Thursday the FCA said it had required 224 adverts from claims firms about car finance to either be taken down or changed. There had been highly speculative figures advertised for how much consumers could get back, it said, including compensation figures that did not make clear they covered multiple car loans and misleading claims that refunds were guaranteed. It said companies had been signing up consumers without their consent after they clicked on adverts. Philip Salter, a former FCA regulator now at the consultancy Sicsic Advisory, said: 'I haven't liked a lot of the claims company advertising. 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Before the courts widened the scope of possible mis-selling, the FCA had been investigating a specific model of commission called discretionary commission. This is where the cut that lenders paid dealers was linked to the interest rate consumers were charged, incentivising dealers to charge borrowers more. This model was used in about 35 per cent of car finance deals, according to the FCA, before it banned the practice in January 2021. The FCA said consumers could have paid about £1,100 more in interest over a four-year £10,000 car finance deal because of this commission model — which is being used as the basis for many of the estimates around possible compensation. Salter, who worked on the ban when he was at the FCA, said: 'That previous Court of Appeal ruling surprised me. I think everyone knows that if they're buying a car the salesman's getting commission, don't they? But discretionary commission never felt right to me.' The FCA began its investigation in January last year on whether consumers had been properly told about the link between their repayments and the commission. The investigation was kicked off by two rulings by the ombudsman against Lloyds and Barclays last year, which ordered the banks to refund two consumers more than £1,000 each. The FCA is expected to set out its next steps, including whether there will be a redress scheme, within six weeks. Any scheme would be free and easy for consumers to use, it said, while the FOS is also free for consumers to appeal to. Rob Lilley-Jones from the consumer group Which? said: 'It's vital that finance firms are held accountable for mis-selling and if a large number of motorists are eligible for compensation consumers are likely to be bombarded with ads from claims firms offering to take on their case. 'Affected customers should be careful when enlisting the services of claims management companies as the wrong choice could lead to their case being poorly handled, losing a significant portion of the compensation in legal fees — or both.' Coby Benson from the law firm Bott & Co, which helped win the ombudsman's case against Lloyds, said the experience from PPI was that consumers could sometimes recover more money by going to court than through a redress scheme. He said: 'We would support a proactive redress scheme if it fairly compensated consumers. But we have doubts over the effective implementation of a scheme, because our data shows that about half of clients have a different address now to that which the lender had from the time of the agreement.'
