Supreme Court rules lenders avoid compensation for hidden car finance commissions

In a significant ruling by the UK Supreme Court, lenders FirstRand Bank and Close Brothers successfully challenged a Court of Appeal decision regarding 'secret' commission payments in car finance schemes. The original ruling, made in October of the previous year, determined that motorists who purchased cars before 2021 were entitled to compensation due to a lack of clear communication about commission payments made to car dealers acting as credit brokers. The case involved three drivers who argued they were not adequately informed about the commissions paid on their finance agreements. During the appeal, the lenders’ representatives argued before the Supreme Court that the Court of Appeal’s decision constituted an 'egregious error' and claimed that the dealer-customer relationships should not imply any fiduciary duty towards the customers. This was supported by the financial conduct authorities who believed the previous ruling overstepped the legal bounds. The Supreme Court justices, in their detailed judgment, ultimately concluded that the transactions were conducted with each party's interests and objectives in mind. The Supreme Court did uphold a claim from Marcus Johnson, one of the drivers involved, awarding him £1,650.95 plus interest due to an unfair relationship with the finance company. However, the overarching ruling dismissed the notion that car dealers held a duty to act solely in the customer’s best interest, stating that the dealers were simply pursuing their own commercial goals. Following the Supreme Court's judgment, a Treasury spokesperson acknowledged the ruling and indicated that it would work with regulators and the industry to assess the impact on both consumers and firms. The government is already implementing significant changes focused on improving regulations in financial services to ensure fair treatment for consumers. This ongoing reform is aimed at addressing the issues highlighted by the case and enhancing the overall transparency in car finance agreements, especially since the practice of paying commissions to brokers was banned by the Financial Conduct Authority in 2021. The developments of these legal proceedings showcase the sensitive dynamics within the car finance industry and the implications for millions of consumers who may have been unaware of the commissions that dealers obtained without explicit consent. While the ruling provides clarity for lenders moving forward, it leaves many consumers uncertain about their rights and whether similar circumstances could arise in the future without further regulatory protections being implemented.