Millions of drivers could lose out on compensation following a ruling that motor dealer brokers "don't typically owe fiduciary duties to consumers".
It comes as one of the largest Court of Appeal cases launches today, which could see drivers given fair compensation following a major car finance scandal.
The case challenges a Court of Appeal ruling from October last year that found "secret" commission payments to car dealers were "unlawful".
Two lenders, FirstRand Bank and Close Brothers, are appealing the decision at the UK's highest court in a three-day hearing which concludes on Thursday.
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The Financial Conduct Authority (FCA) has intervened, arguing that the previous ruling "goes too far" in treating motor dealer brokers as owing fiduciary duties to consumers.
In written submissions for the hearing in London, Jemima. Stratford KC, representing the FCA, said: "The sweeping approach of the Court of Appeal in, effectively, treating motor dealer brokers as owing fiduciary duties to consumers in the generality of cases, goes too far.
"The FCA submits that motor dealer brokers do not typically owe fiduciary duties. Treating all motor dealer brokers as fiduciaries would be too sweeping an approach."
However, this position could significantly limit the scope of potential compensation claims. The FCA previously stated that almost 99 per cent of the roughly 32 million car finance agreements entered into since 2007 involved a commission payment to a broker.
The Court of Appeal's ruling last October found that three motorists who bought cars before 2021 had not been properly informed about commission payments to car dealers acting as credit brokers.
The court determined that in these cases, there was either "no disclosure" or "insufficient disclosure" about the commission payments.
Lady Justice Andrews, Lord Justice Birss and Lord Justice Edis stated that "burying such a statement in the small print which the lender knows the borrower is highly unlikely to read will not suffice" as proper disclosure.
The schemes involving these commission arrangements were banned by the FCA in 2021. Over 2.5 million complaints have been made since the FCA launched its investigation in January 2024.
MoneySavingExpert.com founder Martin Lewis outlined three possible outcomes from the Supreme Court case. The most likely scenario focuses on the Supreme Court overturning the Court of Appeal's ruling on Commission Disclosure complaints.
He shared: "If that happens, then the redress scheme will only be set up for DCA complaints. This is still huge, and the fact the payouts will be automatic means it would reach more people and likely be in the billions to low £10s of billions."
A second possible outcome would see the Supreme Court uphold the previous ruling, potentially leading to compensation "at PPI scales of redress, running into the £10s of billions." But he did note that the "unlikely outcome" would see no redress at all.
The Supreme Court decision could take anywhere from a few weeks to several months, though this case is likely to be expedited due to its large scale and public nature. The FCA has committed to setting out its next steps within six weeks of the ruling.
LATEST DEVELOPMENTS:
In the most likely scenario, the regulator will then begin consulting on a redress scheme for the scandal, Lewis explained. The FCA has already extended a pause on firms dealing with car finance complaints to all commission complaints until after December 4, 2025.
This means providers have been able to avoid providing final responses to motor finance non-DCA commission complaints received since October 26, 2024. Despite the pause on handling complaints, experts suggest "it may still be worth submitting a claim now".
The FCA has indicated it will make lenders proactively contact affected customers, reducing the urgency to file complaints. However, submitting a claim could help firms track who's affected, particularly if you've changed your address or contact details.
Find Out More...
It comes as one of the largest Court of Appeal cases launches today, which could see drivers given fair compensation following a major car finance scandal.
The case challenges a Court of Appeal ruling from October last year that found "secret" commission payments to car dealers were "unlawful".
Two lenders, FirstRand Bank and Close Brothers, are appealing the decision at the UK's highest court in a three-day hearing which concludes on Thursday.
Do you have a story you'd like to share? Get in touch by emailing [email protected]
The Financial Conduct Authority (FCA) has intervened, arguing that the previous ruling "goes too far" in treating motor dealer brokers as owing fiduciary duties to consumers.
In written submissions for the hearing in London, Jemima. Stratford KC, representing the FCA, said: "The sweeping approach of the Court of Appeal in, effectively, treating motor dealer brokers as owing fiduciary duties to consumers in the generality of cases, goes too far.
"The FCA submits that motor dealer brokers do not typically owe fiduciary duties. Treating all motor dealer brokers as fiduciaries would be too sweeping an approach."
However, this position could significantly limit the scope of potential compensation claims. The FCA previously stated that almost 99 per cent of the roughly 32 million car finance agreements entered into since 2007 involved a commission payment to a broker.
The Court of Appeal's ruling last October found that three motorists who bought cars before 2021 had not been properly informed about commission payments to car dealers acting as credit brokers.
The court determined that in these cases, there was either "no disclosure" or "insufficient disclosure" about the commission payments.
Lady Justice Andrews, Lord Justice Birss and Lord Justice Edis stated that "burying such a statement in the small print which the lender knows the borrower is highly unlikely to read will not suffice" as proper disclosure.
The schemes involving these commission arrangements were banned by the FCA in 2021. Over 2.5 million complaints have been made since the FCA launched its investigation in January 2024.
MoneySavingExpert.com founder Martin Lewis outlined three possible outcomes from the Supreme Court case. The most likely scenario focuses on the Supreme Court overturning the Court of Appeal's ruling on Commission Disclosure complaints.
He shared: "If that happens, then the redress scheme will only be set up for DCA complaints. This is still huge, and the fact the payouts will be automatic means it would reach more people and likely be in the billions to low £10s of billions."
A second possible outcome would see the Supreme Court uphold the previous ruling, potentially leading to compensation "at PPI scales of redress, running into the £10s of billions." But he did note that the "unlikely outcome" would see no redress at all.
The Supreme Court decision could take anywhere from a few weeks to several months, though this case is likely to be expedited due to its large scale and public nature. The FCA has committed to setting out its next steps within six weeks of the ruling.
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In the most likely scenario, the regulator will then begin consulting on a redress scheme for the scandal, Lewis explained. The FCA has already extended a pause on firms dealing with car finance complaints to all commission complaints until after December 4, 2025.
This means providers have been able to avoid providing final responses to motor finance non-DCA commission complaints received since October 26, 2024. Despite the pause on handling complaints, experts suggest "it may still be worth submitting a claim now".
The FCA has indicated it will make lenders proactively contact affected customers, reducing the urgency to file complaints. However, submitting a claim could help firms track who's affected, particularly if you've changed your address or contact details.
Find Out More...