The UK’s highest-ranking judges have ruled against motorists in the row over hidden car finance arrangements.
Millions of motorists have been on the edge of their seats since it was revealed that some car dealers had been paying hidden commissions as part of finance arrangements without telling their customers.
This meant that many car buyers who purchased a second-hand vehicle before 2021 had to foot the bill for an extra 25% commission as part of their repayments without their consent.
The practice was banned in 2021, but three motorists who bought their used cars before this complained about the ‘unlawful’ arrangements, with their cases eventually reaching the Court of Appeal.
The Court of Appeal ruled in the motorists’ favour.
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But financial providers – British lender Close Brothers and South African FirstRand – were unhappy with the outcome and took the case to the Supreme Court.
Now the Supreme Court has announced its decision in the drawn-out case, which could shake up the industry.
The top judges ruled against motorists as they sided with the lenders, ruling they are not liable for hidden commission payments in car finance schemes.
Three motorists, Marcus Johnson, Andrew Wrench and Amy Hopcraft, complained after finding out that they had been given only one finance option while the car dealers made a profit from the sale of the car and pocketed a commission from the lender.
Each had bought a second-hand car for less than £10,000.
The Court of Appeal judges had previously said that ‘burying such a statement in the small print which the lender knows the borrower is highly unlikely to read’ meant that the motorists could not be properly informed about the commission.
Almost 99% of around 32 million car finance agreements since 2007 involved a commission payment to a broker.
But today’s ruling in favour of the lenders is expected to limit the compensation payments to motorists.
Ahead of the decision, financial institutions had reportedly set aside billions for potential compensation.
HSBC analysts estimated last year that the price tag of the scandal could reach £44 billion.
Shareholders at financial household names like Barclays, Santander, Lloyds Banking Group, and Close Brothers are likely to have let out a sigh of relief after the ruling today.
However, disappointed motorists could still have a way to claim compensation as the UK finance watchdog is considering launching its own redress scheme, independent of the court ruling.
The Financial Conduct Authority (FCA) has been looking into launching its redress scheme to help arrange compensation for affected motorists after running its own investigation into car finance issues.
It found widespread evidence of mis-selling of car finance agreements across the country, known as discretionary commission arrangements (DCAs).
The FCA will confirm within six weeks whether it will go ahead with the redress scheme.
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