Supreme Court rules in lenders’ favour in car finance case – in blow to motorists
by 0 
British banks and lenders have been spared a huge bill as the Supreme Court has overturned a ruling that could have meant millions of motorists were due compensation for mis-sold car finance.
However the court sided with one of the claimants, Marcus Johnson, and awarded him individual compensation due to the circumstances in his case – but on other points the court overturned a Court of Appeal ruling that the customers had a case.
The judgment is likely to significantly limit the scope of potential payouts to motorists after the Court of Appeal last year ruled “secret” commission payments to car dealers as part of finance arrangements without the buyer’s fully informed consent were unlawful.
The court found three motorists, including Mr Johnson, had not been told clearly or at all that the car dealers, acting as credit brokers, would receive a commission from the lenders for introducing business to them.
The drivers had all bought their cars before 2021 and the court said they should receive compensation.
Read more: What is the car finance scandal?
Two lenders, FirstRand Bank and Close Brothers, took the row to the Supreme Court and said at a three-day hearing in April that the decision was an “egregious error”.
The Financial Conduct Authority (FCA) also intervened in the case and told the UK’s highest court that the Court of Appeal ruling “goes too far”, while the three motorists – Amy Hopcraft, Mr Johnson and Andrew Wrench – opposed the challenge.
Lords Reed, Hodge, Lloyd-Jones, Briggs and Hamblen handed down their judgment to Friday.
Giving a summary of the ruling, Lord Reed said: “For the reasons set out in detail in a judgment published today, the Supreme Court allows the appeals brought by the finance companies.”
He continued: “However, we uphold Mr Johnson’s claim that the relationship between him and the finance company was unfair, and we allow the appeal in his case only because the Court of Appeal made a number of mistakes in reaching its decision.
“Retaking the decision on a proper basis, we award him the amount of a commission plus interest.
“The other customers’ claims are rejected.”
File pic: PA
The FCA will study the judgment and could consult on an industry-wide consultation scheme to provide fairness for consumers, the authority’s chief executive has said.
Speaking after the ruling on Friday, Nikhil Rathi said there are cases where there could be arrangements that have been unfair.
The FCA has said it will decide whether it will consult on a compensation scheme by Monday.
Largely, this is a win for the banks
Lord Reed has effectively found the Court of Appeals’ ruling, on many grounds, was incorrect.
So largely, this is a win for the banks.
The Supreme Court judges looked at a few key details, including whether there was bribery or if the dealers owed the car buyers loyalty.
One question was whether the car dealers have been acting in the customers’ interests.
Lord Reed spoke about the relationship the dealers had with the banks, as well as with the customers, and effectively said: no.
He said they do not owe loyalty to the customers and and as a result, these commissions don’t amount to bribery.
He said the dealers were motivated throughout to sell cars at a profit and that should have been clear to everyone.
The motorists in the Supreme Court case all used car dealers as brokers for finance arrangements for second-hand vehicles worth less than £10,000.
Only one finance option was presented to each of them, with the car dealers making a profit from the sale of the car and receiving commission from the lender.
Mr Johnson was buying his first car in 2017 and paid £1,650.95 in commission as part of his finance agreement with FirstRand. The commission paid to dealers was affected by the interest rate on the loan.
Mr Johnson said he was “dumbfounded” by the ruling, adding that it “does not sit right with me”.
He said: “I am obviously happy that my case was successful, but for so many other people that were also overcharged, I just don’t like the message it sends to the UK consumer.”
What does the second case involve?
Some drivers could still receive compensation, as a separate case on car finance is ongoing at the FCA.
The second case focuses on discretionary commission arrangements (DCAs) – a practice banned by the FCA in 2021.
Under these arrangements, brokers and dealers increased the amount of interest they earned without telling buyers and received more commission for it. This is said to have then incentivised sellers to maximise interest rates.
In January 2024, the FCA announced a review into whether motor finance customers had been overcharged because of past use of DCAs.
It is using its powers to review historical motor finance commission arrangements across multiple firms – all of whom deny acting inappropriately.
