After the Supreme Court’s decision, there may be some call of relief from senior finance company and banking officials, but it is unlikely that you will listen to champagne cork popping.
The decision almost certainly reduces the potential compensation bill.
Lenders now do not face the possibility of paying £ 30BN to car buyers to car buyers. The possibility of the government’s move has also started dramatically.
Nevertheless, the industry is not far from hooks. The Financial Conduct Authority can still open a prevention scheme for cases where the dealers gave a financial incentive from lenders to increase the interest rates on as much loan as possible.
The Supreme Court’s decision also upheld a consumer claim, in which the commission’s payment was considered unfair – and it could provide a template to others to follow. This means that the compensation bill can still be in billions.
The intervention of the Supreme Court has been eagerly awaited since October, when the appeal court issued a verdict in three test cases, which could have triggered an avalanche of compensation claims.
In each case, people who bought cars on finance claimed that they were partially or completely unaware that the deal included a commission payment being made by the lender to the car dealer. He claimed that the commissions in the law gave the amount of bribe, or secret payment.
The appeal court judges agreed, essentially, saying that commission payment made by a finance company to a dealer for arranging car loans was illegal if the car buyer did not give his “informed consent”.
He also concluded that a car dealer had a “fidukari duty” towards the car buyer when it came to arrange the car loan. In other words, the dealer should determine his own interests on one side, and work purely on behalf of the customer.
This meant that millions of car buyers could potentially claim compensation – if they could show that the dealer did not specify what commission payments were received for lining the finance deal. This was not enough for the details buried in small prints.
The lenders feared that this would lead to an avalanche of claims against them – and that the same argument could be used to challenge other types of consumer finance agreements, as well as potentially increasing the compensation bill.
But the Supreme Court threw very cold water on those arguments. The court president, Lord Reid, dismissed the idea that car dealers had “a single -minded duty of loyalty” towards their customers, and insisted that they were “clearly and properly” in personal interests in finance agreements, including them.
The ruling clearly stops that there may be a very broader avenue for compensation claims.
However, the court appeared with one of the claimants. In the case of a factory activist Marcus Johnson, it was decided that the finance agreement was “unfair” under the terms of the Consumer Credit Act.
This was because the payment size of the commission was very large, and because Mr. Johnson was misled about the relationship between the dealer and the lender. He was, he said, entitled to compensation.
Analysts say it can open doors for other cases in which the payment of the commission is seen arrogant.
An important question of the Supreme Court’s decision is that it does not answer. This should be in matters related to the so -called discretionary commission agreements (DCAS). These were finance deals in which the car dealer could determine the interest rate of the loan within a scheduled scale. The higher the rate, the more commission will be paid to them – and the customer will be unaware of this fact.
The Financial Conduct Authority banned such deals in 2021. It is now considering that a prevention plan has to be launched for consumers who were influenced by them. If it proceeds, millions of car buyers may still have a claim, although it is not clear how much compensation they will get.
According to Richard Barnwell, a financial services advisor at the accountancy firm BDO, the bill may still be sufficient.
“We believe that there is still an ability to prevent, for example, if the discretionary commission’s system is considered an inappropriate relationship, the prevention can still be £ 13bn or more from £ 5BN,” he said.
Other analysts agree. According to Martin Lewis, who run the Moneysavingexpart website, “The Supreme Court has certainly limited the number of people who will be able to recover the car finance. I think you are probably talking about the bottom of £ 10bn, opposite £ 40BN.”
This £ 10bn will still be an important person. But the finance industry seems to have threatened to incite the earlier decision to avoid the potential-free crowd to claim compensation.
And while the Treasury says that it will “work with regulators and industry to understand the impact for both firms and consumers”, BBC understands that the possibility of government intervention with the retrospective law to protect financial firms is now significantly reduced.
