You’ll probably have been served all manner of adverts recently from claims companies keen to suggest that compensation may be forthcoming for car finance customers. That was thanks to a case heard by the Court of Appeal, suggesting that customers had been duped in the process – specifically that commission payments from car finance companies to dealers amounted to bribes, and dealers owed a duty of loyalty to customers. (The word ‘fiduciary’ was being Googled as frantically today as ‘furlough’ was in May 2020.)
Now the panel of justices that comprise the Supreme Court has overturned the decision made by the Court of Appeal, in two of the three cases presented to it. So on the side of the argument wagered by the finance companies, essentially, rejecting the idea of commission as bribes alongside the implied obligation that the dealer look out for the customer’s best interest. The ruling means a lot of those claims will go unfulfilled. The lenders, Close Brothers and FirstRand, took the case to the Supreme Court after the Court of Appeal ruled last October that suggested nearly all commission agreements were unlawful.
Where the Supreme Court agreed with last year’s decision (albeit for different reasons) was in the case of Marcus Johnson; the commission paid to a dealer from the finance company – in his case FirstRand, in the UK as MotoNovo – was 55 per cent of the cost of the credit. Supreme Court President Lord Reed said that the amount, undisclosed to the customer, was sufficiently high that it was a “powerful indication that the relationship between Mr Johnson and the finance company was unfair” – a key distinction. He will receive the credit amount as compensation, plus interest.
Quite what this means more broadly remains to be seen, although it seems likely a more limited compensation scheme concerned with ‘discretionary commission arrangement’ loans – a type of arrangement now banned – will go ahead. This is currently under consideration by the Financial Conduct Authority, which had previously suggested that it could prospectively launch within six weeks of the Supreme Court’s ruling. So worth keeping eyes open for that.
Regardless, a reversal of last year’s decision means that any large-scale compensation payday – one estimated to be in the region of £44bn, and therefore feared by the UK government for its wider impact on the market – is now off the table. That will be considered a blow for consumers in many corners, and means it is unlikely to be the end of the story. Those with the time and a more detailed understanding of case law might like to peruse the Supreme Court’s 110-page ruling; alternative viewpoints, as ever, are welcome below.