Car finance scandal live: Supreme Court rules on compensation for millions in mis-selling case – UK Times

The Treasury has said it will work with the industry and regulators following Friday’s Supreme Court ruling.

A spokesperson said: “We respect this judgment from the Supreme Court and we will now work with regulators and industry to understand the impact for both firms and consumers.

“We recognise the issues this court case has highlighted. That is why we are already taking forward significant changes to the Financial Ombudsman Service and the Consumer Credit Act.

“These reforms will deliver a more consistent and predictable regulatory environment for businesses and consumers, while ensuring that products are sold to customers fairly and clearly.”

Lenders have avoided potentially having to pay compensation to millions of drivers after the Supreme Court ruled that they are not liable for hidden commission payments in car finance schemes.

Delivering the Supreme Court’s ruling, Lord Reed says the court allows appeals brought by the finance companies.

However, he said that the court upholds Mr Johnson’s claim “that the relationship between him and the finance company was unfair”.

“We award him the amount of commission plus interest,” Lord Reed says. The claims of the other two customers have been rejected.

The ruling has begun and Lord Reed, Supreme Court President, has explained that he is handing down the ruling this late to avoid “market disorder”.

He explains they had been advised by the Financial Conduct Authority that the outcome of this appeal may affect the price of securities issued by companies involved in the car finance market.

He added: “The markets will need time to digest the judgement and consider its implications”.

The judge at the Supreme Court has begun to deliver their ruling.

We’ll be bringing you all the latest updates.

Lords Reed, Hodge, Lloyd-Jones, Briggs and Hamblen are due to hand down their ruling at 4.35pm on Friday.

If justices dismiss the challenge, it is unclear how many people could be entitled to compensation.

If they side with the lenders, then it is likely to significantly limit the scope of potential payouts to motorists.

The FCA has said it will confirm within six weeks of the judgment whether it is planning to launch a redress scheme.

Rachel Reeves is considering overruling the Supreme Court after lobbying by some of the UK’s biggest lenders, reports said last week.

The chancellor has been part of Treasury contingency plans which will be enforced if the three justices decide to uphold October’s appeal court ruling, which could see customers apply for billions in compensation .

According the The Guardian, Reeves and officials have discussed the possibility of intervening in the case, in a hope to slash the potential of a £44bn compensation bill for lenders such as Lloyds, Santander, Barclays and Close Brothers.

The motor finance industry is now facing a looming crisis over an upcoming court decision over the potential mis-selling of loans.

Companies like Close Brothers have been setting aside hundreds of millions of pounds over the last year amid estimates that lenders could be forced to foot a £30 billion compensation bill.

This could happen if the UK’s highest court, the Supreme Court, upholds a landmark ruling on hidden motor finance commission arrangements on Friday.

Credit ratings agency Moody’s also estimated that the compensation costs could hit £30 billion.

Last year, Close Brothers revealed plans to bolster its finances by £400 million and cut costs as it prepares for the impact of compensating people.

The chief executive of Lloyds, which earlier this year said it was setting aside £450 million to cover potential compensation costs, said the uncertainty was one of the biggest problems for the industry.

About 80 per cent of new cars are bought using motor finance in the UK – so the decision could have major consequences for this industry.

Mr Gibbard said: “The FCA has got to make sure the market is stabilised – this is the second biggest credit market outside of mortgages.

“This is more than provision of credit – this is people getting to work, taking somebody to hospital, taking the kids to the playground – so this is a real facilitator for the economy.

“I think there is a risk, but everybody is so acutely aware of that risk so hopefully it won’t have that disruptive effect.”

Mr Gibbard also said a decision could have “far-reaching consequences” with other parts of the financial services sector also potentially coming under pressure for commission payments on loans.

Martin Lewis has warned car owners to hold tight and to await the Supreme Court ruling before taking any action.

The money saving expert wrote on social media: “People asking me “what to do”. The very strong answer right now is nothing.

“This will all play out tonight then likely over the next six weeks or so and then we’ll have a good idea. Do not sign up to a claims firms. Don’t do anything now.”

If the FCA decides to proceed with a redress scheme, it is likely to clarify what type of motor finance arrangements it applies to – and potentially include all deals where people were not told clearly enough, or at all, that the car dealer was receiving commission.

A scheme is intended to be simpler for consumers than making a direct complaint to providers.

The watchdog said it would expect “fewer consumers to rely on a claims management company, meaning they would keep all of any compensation they receive” and would be “more orderly and efficient for firms than a complaint-led approach”.

Mahesh Vara, a legal director for Shoosmiths, said a decision that secret commission payments were unlawful would “naturally be a boon to claimants firms and consumers”.

“I think this is one of the first large-scale consumer mis-selling “scandals” of the social media digital age,” he said.

“It’s now leading to a greater expectation of there being almost a guaranteed payment. That is what the FCA will have to consider.”

Adverts from claims management companies have sprung up significantly in the lead up to the court decision – but some regulators have been warning against using them as people may be charged for a service they ultimately do not need.