The United Kingdom’s Supreme Court has ruled that lenders will not be required to pay large-scale compensation to motorists over car finance commission arrangements, a decision that significantly eases fears of widespread financial liability for banks and credit providers.
In a closely watched judgment, the court sided with finance companies in two of three test cases concerning commission payments made by banks and other lenders to car dealers for arranging vehicle loans. The cases centered on whether dealers had a fiduciary duty to act in the best interests of customers when selling cars on finance.
Delivering the ruling, Supreme Court President Lord Robert Reed overturned a surprise Court of Appeal decision that had previously raised the prospect of mass redress claims. Reed clarified that car dealers arranging finance agreements were not bound by fiduciary duties toward buyers, noting that the earlier ruling had “failed to understand that the dealer has a commercial interest in the arrangement between a customer and a finance company.”
The outcome significantly reduces the scope for potentially millions of motorists to seek compensation, according to BBC business correspondent Theo Leggett.
While one claimant, Marcus Johnson, was found to be entitled to compensation, the judgment makes clear that similar claims are unlikely to succeed unless involving larger commissions. Speaking outside the court, Kavon Hussein, representing claimants Andrew Wrench and Amy Hopcraft, expressed disappointment with the decision. “It’s perhaps not the best outcome for consumers in general,” Hussein said, adding that cases involving small commissions will likely not result in compensation.
The Treasury acknowledged the implications of the ruling, stating that it recognizes “the issues this court case has highlighted” and will work with regulators and the industry “to understand the impact for both firms and consumers.”
The decision brings relief to the motor finance industry, which had been bracing for a wave of costly claims following the Court of Appeal’s earlier ruling. However, questions remain over how regulators will address concerns raised by the case and whether further consumer protections may be introduced.
