Millions denied car finance compensation payouts after Supreme Court ruling

Theo Leggett
Business correspondent

The Supreme Court has sided with finance companies in two
out of three crucial test cases focusing on commission payments made by banks
and other credit providers to car dealers.

These cases focused on whether or not the car dealers had a
duty to act in the interests of the car buyers when selling a car on finance.

It looked at whether it was necessary for the buyer to give
their informed consent to commission payments, and whether a secret commission
amounted to a bribe.

The court ruled that the dealer did not have any obligation
of single-minded or selfless loyalty to the customer and had not suggested to
the customer in each case that it was putting its own interests aside.

It therefore reversed an earlier ruling by the Court of
Appeal.

The Supreme Court did uphold the car buyer’s claim in one
case, in which it considered that the relationship with the buyer and the
finance company was unfair because of the sheer size of the commission, and
because a false impression had been created that the dealer was offering
products from a select panel of lenders and choosing the most appropriate one.

The ruling is likely to reduce the scope for very large-scale
claims for compensation from millions of motorists.

However, a question remains over what will happen regarding
so-called discretionary commission agreements, in which the dealer was paid
more by the lender if they pushed a loan with a higher interest rate.

Such arrangements were banned by the Financial Conduct
Authority in 2021 – and it is still considering its next steps.