Explained: How this ruling impacts a second case – which could force lenders to pay you compensation
Today’s judgment was specifically on the non-disclosure of commission.
Essentially, this was about drivers not being told they’re paying the broker as part of their finance deal to buy a car.
While the ruling is a blow for motorists hoping for compensation, there is a second separate case still ongoing.
That case – driven by the Financial Conduct Authority and not part of the Supreme Court’s ruling – involves what’s known as discretionary commission arrangements (DCAs).
To put it simply, these DCAs set the amount of interest added to the car buyer’s repayment plan – and it’s this interest that covers how much money the brokers earn from your deal.
So, the concern here is that this arrangement incentivised sellers to maximise interest rates, which means you – the car buyer – end up paying more.
This practice was banned in 2021, but the FCA is swamped with complaints – around 20,000 – from motorists who say they were overcharged beforehand.
Investigation
So, in January last year, the FCA announced a review into whether motor finance customers had been overcharged because of previous DCAs.
It’s looking into historical motor finance commission arrangements across multiple firms – all of whom deny acting inappropriately.
Compensation
The FCA is also considering a “consumer redress scheme”, which would mean firms have to offer appropriate compensation to affected customers.
Under this kind of scheme, eligible drivers wouldn’t need to complain, instead they would be paid out an amount dictated by the FCA.
An estimated 40% of car finance deals between 2007 and 2021 are likely to be eligible for compensation.
In one complaint already handled by the Financial Ombudsman Service, the driver was found to have been charged interest of 5.5% when it could have been sold at 2.49%.
The lender was told to pay the difference between payments, plus 8% interest on each overpayment.
Court impact
In March, the FCA said it will consider the court’s decision and if it concludes motor finance customers have lost out from widespread failings by firms, it is “likely [to] consult on an industry-wide redress scheme”.
However, the FCA could go ahead with a redress scheme regardless of the court’s decision today to mostly side with lenders.
The regulator said it will confirm if it is proposing a scheme within six weeks of the Supreme Court’s decision – so by 12 September we should have more clarity.
