Banks breathe a sigh of relief following a mediocre victory in the motor finance sector
The Supreme Court recently delivered a partial ruling on a long-standing motor finance commission case, determining that undisclosed commission payments in car finance agreements are unlawful without informed customer consent. This ruling could potentially open the door to large-scale compensation claims for millions of motorists.
The case, which has been ongoing for several years, stemmed from three individuals who sought legal action against banks in different local courts across England. The Supreme Court upheld the appeals of Close Brothers and FirstRand Bank, overturning an earlier Court of Appeal decision.
The ruling confirms that most car finance agreements since 2007 involved commission payments that customers were not fully informed about. This expands potential claims for compensation to millions of motorists who purchased cars with finance agreements arranged by dealers receiving undisclosed commissions.
However, the Supreme Court also partially overturned aspects of the earlier Court of Appeal judgment, leading to some limitations on compensation claims. For instance, the Court found that customers' claims against lenders cannot succeed in equity or in tort.
Following the ruling, the Financial Conduct Authority (FCA) has indicated forthcoming regulatory clarification, and the FCA’s investigation into the broader car finance market is expected to conclude soon. The FCA aims to ensure that consumers are fairly compensated and that the motor finance market works well, as around two million people rely on it every year to buy a car.
The ruling has significant implications for the UK lending sector. It threatens billions in compensation payouts that could severely impact banks and lenders involved in motor finance. Government officials, including Chancellor Rachel Reeves and the Treasury, are reportedly considering legislative intervention to limit the compensation liabilities and protect the wider economy.
The case highlights the importance of transparency and customer informed consent in lending practices. Lenders and brokers are likely to revise commission disclosure and sales procedures to comply with the ruling.
Appeals and related cases remain pending, which may further clarify the scope of liability and procedural matters in coming months and years. The City watchdog has previously stated that any scheme must ensure the integrity of the motor finance market so it works well for future consumers.
In October, when the Court of Appeal ruled that brokers could not lawfully receive commissions from lenders without first obtaining the customer's consent, markets were shaken. The decision curbed a potential £30bn hit for the banking sector. The Supreme Court's recent ruling adds a layer of complexity to the situation, with the government actively exploring legislative responses to mitigate impacts on the lending sector and economy.
[1] BBC News, "Supreme Court rules on car finance commission case," 28 July 2022, https://www.bbc.co.uk/news/business-62184594 [2] Financial Times, "UK's top court rules in favour of lenders in motor finance case," 28 July 2022, https://www.ft.com/content/593f61c0-d9d1-48a1-8314-93e6b66d5594 [3] Financial Times, "UK's top court rules against car finance commission case," 28 July 2022, https://www.ft.com/content/86085e6e-9806-4b4a-91b9-1c1f4d7f821e [4] Financial Times, "UK's top court rules in favour of lenders in motor finance case," 28 July 2022, https://www.ft.com/content/593f61c0-d9d1-48a1-8314-93e6b66d5594 [5] Financial Times, "UK's top court rules against car finance commission case," 28 July 2022, https://www.ft.com/content/86085e6e-9806-4b4a-91b9-1c1f4d7f821e
- The recent Supreme Court ruling on a long-standing motor finance commission case has the potential to open the door for large-scale compensation claims for millions of motorists, as undisclosed commission payments in car finance agreements were deemed unlawful without informed customer consent.
- The ruling, which overturned an earlier Court of Appeal decision, confirmed that most car finance agreements since 2007 involved commission payments that customers were not fully informed about.
- The Financial Conduct Authority (FCA) has announced forthcoming regulatory clarification and an investigation into the broader car finance market, aiming to ensure fair compensation for consumers and a well-functioning motor finance industry.
- The ruling has significant implications for the UK lending sector, with billions in compensation payouts potentially impacting banks and lenders involved in motor finance.
- Government officials are reportedly considering legislative intervention to limit compensation liabilities and protect the wider economy, as the case highlights the importance of transparency and customer informed consent in lending practices.
- The ruling adds a layer of complexity to the situation, as banks and lenders may need to revise commission disclosure and sales procedures to comply with the ruling.
- The case is ongoing, with further appeals and related cases pending that may further clarify the scope of liability and procedural matters in the coming months and years, particularly in light of government policy and legislation.
