Millions of car buyers who were hoping for compensation over mis-sold motor finance have been denied redress following a significant ruling by the UK Supreme Court, in a partial victory for lenders that reins in what could have been a multibillion-pound scandal.
The decision overturns core elements of a 2023 Court of Appeal judgment that had favoured consumers in cases against lenders MotoNovo and Close Brothers, which analysts warned could expose the industry to up to £44 billion in compensation liabilities—rivalled only by the historic PPI scandal.
While the ruling curbs the legal precedent that consumer rights groups hoped to rely on, it does not spell the end of potential payouts. The Financial Conduct Authority (FCA) is continuing its own wide-ranging investigation into discretionary commission arrangements on at least 14.6 million car finance deals struck between 2007 and 2021.
The FCA is expected to announce its next steps within six weeks of the Supreme Court’s decision.
At the heart of the issue are “secret” or undisclosed commissions paid by lenders to car dealerships for arranging finance. Under so-called discretionary commission arrangements, dealers were allowed to set interest rates on loans—earning more commission the higher the rate, which critics say incentivised inflated borrowing costs for consumers.
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