What the Supreme Court Judgement Means for Car Finance Claims

Millions of people could still potentially be due compensation for unfair car finance agreements, in spite of the Supreme Court’s recent judgement that means millions more will be unable to claim.

It was argued to the court that undisclosed commissions from finance companies to car dealers were bribes. That would have meant that a much wider group of people would have been able to claim following successes by a number of claimants in the lower courts. But the Supreme Court rejected that. It was not a bribe.  It did find, however, that many people may still have the right to claim if their car finance included a commission that was large and not properly disclosed.

In this article, we cover what the Supreme Court has decided and what this means for potential claimants, why you are unlikely to need professional support to make a claim and what to do if you have already signed up with a law firm or claims management company.

Key points to know about the Supreme Court Judgement on car finance claims

• People may be able to claim if the terms of their car finance agreement included an unfair commission that was not adequately disclosed
• Many people will also likely be able to claim if their car finance agreement involved a Discretionary Commission Arrangement (DCA) that was not properly disclosed
• People will not be able to claim simply because their car finance included a DCA or another type of commission of which they were unaware
• Car dealers do not have a ‘fiduciary duty’ to their customers (i.e. a legal responsibility to put their customers’ interests ahead of their own)
• The Financial Conduct Authority (FCA) is expected to launch a redress scheme to handle claims
• Claimants will not need professional support to make a claim to the proposed redress scheme
• If you entered an agreement with a company to help you pursue a claim and are no longer eligible following the Supreme Court judgement, your claims company should notify you and there is likely to be no cost to you
• If you have an agreement with a claims company and are still eligible to claim but now wish to do so by yourself, you may need to pay a termination fee
• Longmores can advise you on who to contact to find out if you may be eligible to claim

What has the Supreme Court decided about car finance claims?

The Supreme Court considered three test cases relating to commissions paid by finance companies to car dealerships. These commissions were paid for the dealerships arranging finance agreements on behalf of their customers.

The Court of Appeal had earlier concluded that these commissions were unfair because:

• Dealers had a legal responsibility to act in their customers’ best interests when setting up car finance agreements (a ‘fiduciary duty’) because they were effectively acting as finance brokers
• In two of the three cases, the commissions paid to the dealers were not disclosed to the customers, meaning they amounted to bribes
• In the third case (Johnson v FirstRand Bank Ltd), the commission had been disclosed but was considered unfair because of its high rate relative to the value of the loan agreed

The Supreme Court disagreed. It ruled that car dealerships did not have a fiduciary duty to their customers and that, therefore, the law relating to bribery did not apply, so the commissions could not be considered bribes.

However, the Supreme Court did accept that, in the Johnson case, there were still grounds for a claim. This was because of the high-level of the commission involved and because important facts about the arrangement had not been adequately disclosed to the customer.

What does the Supreme Court judgement mean for car finance claims?

Many people who thought they had grounds for a claim will now be unable to pursue compensation. That said, people may still be able to claim if they can show that their car financing included an unfairly high commission for their dealer and that this was not adequately disclosed to them.

Separately, people may also be able to claim if their car finance included a particular type of commission arrangement called a Discretionary Commission Arrangement (DCA) and they were not made sufficiently aware of this.

What is a DCA?

Discretionary Commission Arrangements (DCAs) were arrangements between car dealers and car finance providers that meant the level of commission the dealer received was tied to the interest rate on the loans they signed their customers up to.

Essentially, dealers could decide what level of interest rate to offer a customer on their car finance and the dealer would receive a higher commission if the customer agreed to a loan with a higher interest rate.

DCAs were banned by the FCA in 2020 and it is believed that they were included in around 14.6 million car loans between 2007 and 2020.

How Longmores can help with car finance claims

At Longmores, we regularly help individuals and businesses with all types of financial claims. However, as covered above, you are unlikely to need a law firm or claims company to help with making a car finance claim. This is because the FCA is expected to introduce a redress scheme to which claimants will be able to apply directly.

Where our team can help is by pointing you in the right direction to make enquiries with finance providers to ascertain whether a finance agreement you entered into had a discretionary payment arrangement. You should then have the information you need to pursue a claim by yourself without having to sacrifice a percentage of your compensation to a claims company.

For expert help with who to contact about making a car finance claim, please contact our Dispute Resolution team who will be happy to advise.

Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.