Car finance scandal LIVE: Top UK court to rule on huge £44bn case
If the FCA decides to proceed with a redress scheme, it is likely to clarify what type of motor finance arrangements it applies to – and potentially include all deals where people were not told clearly enough, or at all, that the car dealer was receiving commission.
A scheme is intended to be simpler for consumers than making a direct complaint to providers.
The watchdog said it would expect “fewer consumers to rely on a claims management company, meaning they would keep all of any compensation they receive” and would be “more orderly and efficient for firms than a complaint-led approach”.
Mahesh Vara, a legal director for Shoosmiths, told PA that a decision that secret commission payments were unlawful would “naturally be a boon to claimants firms and consumers”.
He added:
I think this is one of the first large-scale consumer mis-selling 'scandals' of the social media digital age.
It’s now leading to a greater expectation of there being almost a guaranteed payment. That is what the FCA will have to consider.
Adverts from claims management companies have sprung up significantly in the lead up to the court decision – but some regulators have been warning against using them as people may be charged for a service they ultimately do not need.
If Supreme Court judges side with the claimants then it could mean that many people who took out a car loan before 2021 may be due a payout, although it is difficult to say at this point how many.
If it sides with the lenders, then it is likely to significantly limit the scope of potential payouts to motorists.
However, the FCA is still looking at compensation for potential mis-selling of some types of motor finance arrangements – known as discretionary commission arrangements (DCAs) – so this could go ahead regardless.
Wayne Gibbard, who leads the automotive finance practice at law firm Shoosmiths, described today's Supreme Court decision will be “absolutely fundamental to what happens next” for the sector.
He said it will inform the scale of potential compensation for customers, which will be overseen by the UK’s Financial Conduct Authority (FCA).
The FCA previously said that, if it thinks there was widespread harm to consumers as a result of commission payments, then it could set up an industry-wide redress scheme.
It said it will confirm within six weeks of the Supreme Court judgment whether it is planning to launch such a scheme.
Rachel Reeves has been told to stay out of the car finance scandal as reports emerge that the Labour Government could override a Supreme Court decision to save lenders.
Last Friday, reports emerged that the Chancellor could step in and change the law to cut liabilities for lenders in a major decision.
According to The Guardian, officials have been discussing the possibility of superseding a Supreme Court decision that could save banks and lenders.
However, Darren Smith, Managing Director at Courmacs Legal, urged Labour to leave the issue alone and let the case run its course.
Martin Lewis has warned that the Supreme Court may yet pull a rabbit out of the hat so nothing is certain until the final decision is out in the open.
The decision may reject the Court of Appeal ruling in part or in full, "in which case discretionary commission arrangement cases will still go ahead via the regulator as they were planned to", Mr Lewis said.
He added:
They could even launch a system where people don't have to apply to get their money back if they were mis-sold. It might just tell firms they have to pay out automatically.
The third one is the Supreme Court comes out with something novel and we just haven't even prepared for that one. That’s my unknown unknown.
If the Supreme Court decides that old cases and contracts are eligible for compensation, lenders could be set for a staggering £44billion bill.
The Court of Appeal found that “secret” commission payments, as part of finance arrangements made before 2021 without the motorist’s fully informed consent, were unlawful.
Lenders, FirstRand Bank and Close Brothers, are challenging that decision.
Treasury chiefs have looked into the possibility of passing new rules to cut the potential compensation bill.
But officials did not get drawn into the rumours last week, and promised to let the process “run its course”.
They told The Express:
We don’t comment on speculation. We want to see a balanced judgment that delivers compensation proportionate to losses that consumers have suffered and allows the motor finance sector to continue supporting millions of motorists to own vehicles.
It is now appropriate to let the appeals process run its course.
Alex Neill, co-founder of Consumer Voice, said today's decision is “crucial” to ensure lenders are "held accountable” over their actions.
He added:
Millions of people trusted their dealer to help them get a fair deal, but were sold loans without knowing the dealer stood to gain. That’s not just unfair – it’s exploitative and illegal.
If the courts rule that consumers deserve redress, we expect the financial regulator to introduce a scheme that gives drivers back what they’re owed.
This is a crucial opportunity to restore trust, uphold the rule of law, and make sure lenders and brokers are held accountable.
Speaking to the BBC, Martin said: "If the Supreme Court upholds the Court of Appeals decision, the knock-on effects could be substantial on other forms of lending and the economy.
"To be honest, it could shake the foundations of consumer lending in the country, meaning less possible available credit for many.
"So much so that even I, and I try and champion consumers in the work that I do, have concerns. I’ve said this since day one in this case that it could do more harm than good.
"It’s therefore unsurprising that we’ve heard talk that the Chancellor could even intervene with retrospective legislation if the Supreme Court were to uphold in full what the Court of Appeal says."
Daily Express
