Supreme Court rules on car finance: latest

In a significant judgment for the nine in 10 people buying new cars on finance the Supreme Court has seemingly ruled out a PPI-style compensation rush for drivers afraid they may have been over-charged on their monthly payments, except in very specific cases.
The ruling is complicated and full of carefully phrased legal nuance, but centres on what it describes as the three-way relationship between the person buying the car, the dealer supplying it and the finance company providing the credit, and on whom the responsibility lies for this being a fair deal. The exact implications will take a while to filter through but, in short, if you’re buying a car you’ll still be able to get finance and if you’re worried you might have been over-charged on a previous or existing car purchase the Financial Conduct Authority is now working on a scheme to figure out who might be owed compensation, how that will work and how much you may be owed. It's complicated but we’ll break down the details below for a sense of how we got here and what happens next, with ongoing updates as more news comes in. Skip to: The latest news Background: car finance and ‘hidden’ commission payments What is the FCA and what is it going to do? How you can raise a complaint and get a response How much compensation will I get if I had car finance with discretionary commission? Am I ok to buy a car on finance now? Will this change how vehicle finance works? Was there discretionary commission all types of vehicles or just cars?

The Supreme Court judgement focuses on three consumers who argued that the car dealers, acting as brokers, failed to disclose commission payments and that affected the impartiality of the finance advice they gave. The Court of Appeal reviewed and the ruled in favour of the consumers while the more recent verdict from the Supreme Court has upheld one of these three claims.
Additionally, the FCA’s ongoing review of historical discretionary commission arrangements (DCAs) in motor finance is evaluating possible misconduct before they were banned in 2021, and whether consumer compensation is needed, though - confusingly - this is a different matter to that considered by the Supreme Court. This review's timeline and focus will be influenced by future court decisions. At the time of the judgement there was a reported sense of relief from dealers and finance providers that, other in one specific case, their business model was lawful and it was business as usual. Since then, however, the FCA has suggested there will be a significant number of consumers affected and due some sort of compensation, though this is likely to be ‘in the hundreds rather than thousands’ in terms of each payout. The Supreme Court judgement provides a basis on which claims can be judged on their merits, though it will be a case-by-case basis rather than a sweeping ‘class action’. Once again, the FCA has been clear in its advice to consumers not to take up the offers made by Claims Management Companies to act on their behalf, given there is still much to be decided, the FCA will manage the process and any third party involved will take a significant cut of any compensation you may be due. To those ends it has already taken action against more than 200 Claims Management Companies it judged to be making exaggerated claims for what compensation they said they could get. Back to top

The legal battle began when three consumers brought claims against their motor finance lenders, arguing they had been mis-sold car finance because dealer commissions were not properly disclosed. All three initially lost their cases in the lower courts. However, on appeal, the Court of Appeal ruled in their favour, holding that undisclosed commissions could breach a broker’s fiduciary duty to the customer. This landmark decision prompted several finance companies to pause new lending while they reviewed their practices, before appealing the rulings to the UK Supreme Court for final determination.
The dispute stems from how much commission the dealer makes from selling the car in its role as a broker between the customer and the finance company. While there’s nothing inherently wrong with this rules have been tightened up after complaints from consumers who felt there was a lack of transparency for the fact dealers and finance companies were varying the commission payments to their benefit without customers being aware. These are the Discretionary Commission Arrangements (DCAs) that were outlawed in January 2021. This is where it gets a little confusing because the recent Supreme Court judgement was not about the DCA issue but, rather, individual complaints from three specific customers against finance companies they felt had treated them unfairly. The regulator the Financial Conduct Authority agreed and the Court of Appeal ruled in their favour, the finance companies in question appealed and this is what the Supreme Court ruled on, with two of the cases turned down and one upheld. This judgment will now form the basis for the FCA’s ongoing investigation and set the parameters for who may – or may not – be in line for compensation, how much that will be and how it will be awarded. Back to top

The Financial Conduct Authority (FCA) is a financial regulatory body and conduct regulator for financial services firms and markets in the UK. It is investigating the issue using powers under the Financial Services and Markets Act 2000.
Following the Supreme Court judgement the FCA has confirmed it will be continuing its investigation into commission payments, and will use the ruling to help it judge which were unfair and may mean consumers are owed compensation. This will, according to an interview with FCA chief executive Nikhil Rathi on the BBC, be reviewed in October with payments likely from early next year. The scope of the redress scheme is unclear at this point but looks to be wider-ranging than it seemed on the court judgement. What counts as unfair? Well, in the case where the Supreme Court ruled in favour – that of Mr Johnson – it was judged the dealer had implied the finance package he’d been offered was one it had selected for him from a range of providers, based on it being the best value. In fact, the dealer was only working with a single provider and the commission was judged to be excessive, and Mr Johnson couldn’t reasonably have understood exactly what he was signing up to. While any wider compensation will be judged on a case-by-case basis this provides the FCA with a definition of what might be considered unfair. Back to top

The FCA will use the Supreme Court ruling as a way of judging which car finance packages were unfair, and how much compensation may be owed. This could be back-dated as far as 2007, though there are concerns from lenders about how practical this could be. The level of payout will also vary according to each individual case, but the FCA says the redress will likely be in the hundreds of pounds, not the thousands. It says it will announce its findings in October of this year, with payments likely to start from next year. Once again, it advises against using Claims Management Companies who may take up to a third of any payment you could be owed.
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The FCA is now consulting on what a redress scheme will look like, covering two types of complaints.
The first is Discretionary Commission Arrangements (DCA), which will form the main focus of the redress scheme. Where it is given, compensation for these complaints is now expected to be hundreds of pounds rather than thousands. The second consultation is for other commission complaints, where customers argue they were charged unfairly due to high or undisclosed commissions. Following the Supreme Court’s ruling, these will be assessed on a case-by-case basis because not every undisclosed commission automatically makes an agreement unfair. The FCA is expected to report back in October with a clear approach for each type of complaint, and any payments are likely to start next year. As always, the FCA advises against using Claims Management Companies, which may take up to a third of any compensation owed. Back to top

Car finance is still available while this investigation is ongoing.
You may find brokers (retailers) advise you that they will receive commission, but remember, this is a common and legal way for brokers to make a living and, while discretionary commission arrangements have been banned, the FCA’s ban doesn’t cover all types of commission. Under the new rules, the retailer (acting as a broker) must confirm you’re paying commission. You’re well within your rights to ask how commission affects the final amount you pay. Whenever you look at a finance plan, you should make sure you can afford the monthly repayments and that you read and understand the terms and conditions. Take your time to research the types of finance available, how much you’d have to pay and when by, plus what would happen if you fell behind with payments. Ask the retailer any questions you have, and don’t rush into a decision. Back to top

The implications of the Supreme Court ruling will take some time to digest but, broadly, it has seemingly decided that apart from in one specific case dealers and finance providers were acting lawfully. So, basically, it will be business as usual. You may, however, find you are provided with more information regarding any commission or payments retailers or brokers involved in vehicle finance receive in order to help you make an informed decision.
Speaking on behalf of lenders in his role as Director General of the Finance and Leasing Association, Stephen Haddrill told the BBC the ruling could end up making finance more complicated and therefore expensive for some consumers, especially those on lower incomes. How this shakes out remains to be seen. Back to top

This issue affects any circumstance where finance, through a broker or dealer, that has a discretionary commission arrangement included in the contract has been used to acquire vehicles such as cars, vans, camper vans and motorbikes between 2007 and 2021.
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