The UK Supreme Court has overturned two of the three rulings brought before it in a high-profile car-finance commission case.
The Court of Appeal originally found in favour of the drivers, but after appeals were brought before the Supreme Court, one has been upheld, but two of the decisions have been reversed.
Last year, HSBC estimated the scandal could have cost lenders £44bn in compensation, though this could now be lower because two of thw lower court’s decisions have been reversed.
The Supreme Court was deciding whether or not to uphold an earlier ruling which found that hidden commission payments to car dealers were unlawful.
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When people buy a car on finance, they are effectively loaned the money, which they subsequently pay off in monthly instalments. These loans come with interest attached and are organised by brokers – the people who sell the finance plans.
Last year, an Appeal Court ruled in favour of three car buyers who claimed that hidden commissions on their car purchase deals unlawfully added thousands of pounds to the cost.
The cases were set to be used as precedent for others involving similar situations.
What did the Supreme Court decide?
Mr Johnson, Mr Wrench and Ms Hopcraft – the three claimants – all used car dealers as brokers for finance arrangements for second-hand cars, all worth less than £10,000, before January 2021.
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.
In the first case, 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. In the second case, Mr Wrench entered into two hire-purchase agreements for an Audi TT coupé and a BMW 3 Series, with FirstRand, in 2015 and 2017 respectively, paying hundreds in commission in total. In the third case, Mr Johnson, then a factory supervisor, was buying his first car in 2017 and paid £1,650.95 in commission as part of his finance agreement with FirstRand for a Suzuki.This was due to an “unfair” relationship between a customer and a finance company.
It is yet to be determined exactly what the ruling means for consumers. Some may still be able to claim compensation.
“You may not even have to claim it, it could be automatic. And with excessive commissions I suspect more guidance will come on that at a similar time.
Brian Nimmo, Head of Redress at independent financial services consultancy Broadstone, said: “Providers are not out of the woods yet as discretionary commission arrangement (DCA) cases will now need to be looked at on a case-by-case basis.
“As a result, finance companies will still need to review all of their DCA cases, assess whether they are unfair, and then calculate potential redress, which will be a significant exercise.”
Why did the Government get involved?
The Supreme Court rejected this.
In a new statement, a spokesperson for the Treasury 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.
“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.”
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