Court rules against payouts on millions of car purchases

Lenders have avoided having to pay compensation for hidden dealer commission fees in all but the most egregious of cases

- MILLIE COOKE KATE DEVLIN

Millions of drivers have been denied payouts as the Supreme Court ruled that lenders are not liable for hidden commission payments in car finance schemes.

Two lenders, FirstRand Bank and Close Brothers, went to the UK’s highest court to challenge a Court of Appeal ruling that found that the “secret” commission payments paid by buyers to car dealers as part of finance arrangements made before 2021, without the motorist’s fully informed consent, were unlawful.

The Supreme Court’s decision means that the bulk of the claims will not go ahead, leaving the door open to compensation for only the most serious cases and protecting banks from a wave of costly payouts.

Experts now expect compensation to cost lenders between £5bn and £15bn, rather than the £45bn it was expected to cost if the Supreme Court upheld the ruling in full - a payout that would have been similar in scale to the one that followed the payment protection insurance (PPI) scandal, which cost the banks almost £50bn.

The ruling means that the Treasury has avoided a worst-case scenario, as such a massive payout from banks would have posed a major threat to the government’s plans to grow the economy. There was also speculation that the chancellor might have been forced to step in to cap the amount of compensation banks would be required to pay, in order to limit its impact.

In the wake of the ruling, lawyers have said consumers who paid large commissions can still expect compensation. Richard Coates, partner and head of automotive at the law firm Freeths, said: “This is a significant judgment for lenders and dealers.

“As we predicted, whilst the Supreme Court found that dealers do not owe a fiduciary duty of trust and confidence when arranging car finance for their customers, the judgment opens the gateway for consumers to bring claims under the Consumer Credit Act, where particularly large commissions have been paid and the relationship is therefore unfair.