Motor finance ruling which could see MILLIONS get payouts due today

Millions of motorists could be in line for compensation on their 'mis-sold' car finance deals following a Supreme Court ruling later today.

The most senior judges in the country are today delivering a vital judgement in the car loan mis-selling scandal which has the power to spark compensation claims and a mass redress scheme.

The highest court in the UK is expected to deliver its verdict at 4.35pm today.

The majority of new cars – as many as 90 per cent – are bought via car finance deals. 

Drivers pay an upfront deposit for their car, borrow the rest from a lender and pay back the loan each month.

However, many dealers and brokers were paid a commission by lenders for signing motorists up to these agreements.

The Supreme Court is considering an appeal against a Court of Appeal ruling made in October last year, relating to three claimants who had each bought cars on credit.

In each case, the car dealer made a profit on the sale of the car but also received a commission from the lender for introducing the business to them - which the three claimants argued they did not know about.

The Court of Appeal found that 'secret' commission payments, as part of finance arrangements made before 2021 without the motorist's fully informed consent, were unlawful.

The lenders, FirstRand Bank and Close Brothers, are challenging that decision, which is why the case is now in the Supreme Court.

If the court decides that the arrangements were unlawful, it paves the way for millions of motorists who took out these deals between to claim for compensation.

Billions of pounds could be claimed by people who have taken out car finance deals as a result and experts say the ruling could spark one of the 'largest mass redress schemes we have ever seen'.

Lenders have already set aside huge sums of money in preparation for paying compensation, should they need to.

Lloyds has ringfenced £1.2billion for such occasion. The compensation bill for lenders could potentially hit £44billion.

However, even if justices do uphold last October's ruling, a potential intervention from Chancellor Rachel Reeves could spark a roll back on a compensation due for motorists.

The Exchequer is reportedly considering overruling the court following lobbying by some of the UK's biggest lenders.

It is understood the Treasury is considering whether the Government can retrospectively introduce new laws to cover old cases in order to slash the £44billion bill for City firms.

Drivers may have also unknowingly been signed up to a discretionary commission agreement (DCA) when they took out their car loans. In a DCA, lenders allow brokers and dealers to hike interest rates on car finance to increase their commission.

A car buyer borrowing £10,000 over four years could have paid up to £1,100 more than they should have because of commission payments made to dealerships by the banks, according to the Financial Conduct Authority (FCA). These were banned in 2021 by the regulator.

Motorists may have paid £165 million a year in unnecessary fees, it is believed.

While the Supreme Court is looking at all hidden commission cases, not just these DCAs, the ruling is set to pave the way for the FCA's redress scheme.

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The FCA – which has been probing these DCA agreements since January last year – is holding off confirming a compensations scheme and setting out any details of a until six weeks after the court ruling.

The watchdog in March said if after the Supreme Court ruling it thinks there was widespread harm to consumers as a result of commission payments, then it could set up an industry-wide redress scheme.

It could potentially include all deals where people were not told clearly enough, or at all, that the car dealer was receiving commission.

This means that drivers won't have to go to court to get the compensation they are owed.

Brian Nimmo, head of redress at consultancy Broadstone, says: 'The Supreme Court ruling could kickstart one of the largest mass redress schemes we have ever seen. The ruling should give clarity on whether discretionary commission was unlawful and also what the ramifications could be for other markets with elements of hidden commission.

'The FCA has already set out some of the key decisions it will make around the potential implementation of a redress scheme that would be highly complex in seeking to balance fairness for consumers and the integrity of the motor finance market.

'The FCA will take six weeks before confirming their intentions around a compensation scheme and meanwhile there is media speculation that the Government may intervene to reduce the liability to the detriment of consumers.'