Supreme Court Ruling on Car Finance: Lenders are not in the Clear

Yesterday’s Supreme Court car finance ruling is being widely reported as a win for lenders. However, with one of the claims upheld, and the FCA due to announce in relation to a redress scheme, lenders are not in the clear. “This is not over, and consumers claims could well still be valid – despite what may be reported in the media this weekend” say leading consumer law firm Slater and Gordon.

There are two types of commission in issue.

The first is discretionary commission – this is where brokers could increase the amount of interest people were charged in order to earn more commission. This applies to around 40% of all car finance deals and on this, the FCA are due to announce if there will be a redress scheme on Monday morning.

The second is fixed commission – this is about whether a fixed level of commission was lawful without informing consumers. The Supreme Court held that a commission such as this was not a bribe, nor did the car dealership owe the consumer a special duty to act in their interests – BUT – they did concede that in many circumstances a commission such as this was unfair in accordance with the Consumer Credit Act.

So, while the Court effectively sided with lenders in two of the three cases, the judgment does not close the door on compensation. In fact, millions of consumers will still be owed compensation if the relationship was unfair, which is likely the case for DCAs and may be for some fixed commissions cases.

We know now that claims based on unfair relationships remain valid, and that Discretionary Commission Arrangement (DCA) claims - affecting around 40% of car finance agreements - are still under active review by the Financial Conduct Authority (FCA).

“This is far from the end,” said Elizabeth Comley, Chief Operating Officer at Slater and Gordon Lawyers, “The Supreme Court has acknowledged that unfairness exists and now it’s up to the FCA to ensure consumers are protected and compensated fairly.”

The FCA has announced that it will set out its next steps by Monday, 4 August, including whether it will launch a formal redress scheme. Slater and Gordon is calling on the FCA to act decisively and in the best interests of consumers.

“The onus is now on the FCA to produce a redress scheme that matches the interests of the Judgment and consumers. We remain concerned that aspects of any proposed redress scheme may inadvertently exclude a significant number of those affected. It's important that any redress scheme is not left solely in the hands of the lenders in terms of paying compensation, given they themselves would be directly involved in any unfair relationship. We stand ready to work with the FCA to put things right.”

With millions - potentially billions - of pounds at stake Slater and Gordon will continue to support consumers in this complex ruling should they choose a lawyer to represent them.