Millions of drivers may be entitled to compensation based on the verdict of a significant car finance case set to be announced on Friday. Banks are preparing for a substantial payout, with estimates reaching as high as £30 billion. Notable consumer advocate Martin Lewis cautioned that the ruling could have significant economic and political repercussions, potentially disrupting consumer lending practices.
The controversy revolves around undisclosed commissions received by car dealers from financial institutions. The more buyers paid in interest rates, the larger the commissions. The Supreme Court’s decision, expected after the close of the stock markets, may greatly expand the number of affected individuals.
Martin Lewis, the founder of MoneySavingExpert.com, emphasized the far-reaching implications of the impending announcement. A survey indicated that over 23 million people anticipate receiving compensation for car loans they were misled into. However, reports suggest that the Supreme Court might ease the burden on lenders, leading analysts to revise their payout projections.
The anticipated ruling by the highest court in the country also carries political significance. Chancellor Rachel Reeves expressed concerns that a substantial compensation bill could limit banks’ lending capacity, potentially impeding economic growth.
The majority of new and some used cars are financed through agreements where buyers make a deposit and secure a loan for the remaining amount. Allegations suggest that dealers were securing customers into agreements without disclosing additional fees between 2007 and 2021, affecting approximately 40% of car finance deals.
Moreover, the Court of Appeal’s previous ruling created shockwaves in the industry by determining that undisclosed commissions constituted a breach of regulations, potentially leading to compensation for a vast majority of car loan recipients. This case, focusing on Commission Disclosure Complaints, is now under review by the Supreme Court.
The Financial Conduct Authority launched an investigation into mis-selling practices related to commissions last year. Following the Supreme Court’s decision, the FCA will decide whether to implement a free redress scheme for motor finance customers within six weeks.
Concerns have arisen regarding individuals potentially losing a significant portion of their compensation by engaging in unnecessary paid schemes. The FCA and the Solicitors Regulation Authority are urging legal firms and claims management companies to adhere to guidelines on handling motor finance commission claims and to inform clients about the redress scheme once it is established.
Paul Philip, CEO of the SRA, emphasized the importance of law firms acting in the best interests of their clients and complying with regulatory obligations. They must be transparent about costs and provide clients with information on pursuing claims through the redress scheme, if applicable, at no charge.