Now the UK Supreme Court has ruled against millions of UK drivers seeking compensation for secret commissions added to car loans. This ruling is particularly important as the debate continues over the use of discretionary commission arrangements (DCAs). The court’s decision has favored the finance companies in two-thirds of the key test cases. These litigation gambits specifically targeted the dealer commission payments that banks and other lenders made to car dealers. This ruling, while good for Midas, is bad news for consumers looking for financial redress.
Lord Reed, writing for the Court in a unanimous decision, came two years after long, complex investigations by the FCA. This series of questions focused on thousands of driver complaints about DCAs. At the end of 2021, authorities prohibited such arrangements. They once allowed dealers to make money on loans by marking up interest rates. Before the ban, nearly 40% of cars sold were through these predatory deals.
The FCA is said to be considering designing a class compensation scheme, but had already said it would “need time to understand the judgement.” In a statement, Martin Lewis, founder of Money Saving Expert, calculated that potential compensation payments could exceed £10 billion. He expressed his disbelief at the possibility of there being no scheme for DCA payments, stating, “I would be gobsmacked if there was not a scheme for DCA payments.”
In the context of the ruling, the court found that while some consumers argued that dealers had a fiduciary duty to act in their best interest, Lord Reed disagreed and clarified the nature of the relationship between consumers and dealers.
“At no point did the dealer give any kind of express undertaking or assurance to the customer that in finding a suitable credit deal it was putting aside its own commercial interest as seller.” – Lord Reed
These ruling has extreme implications for consumers such as Marcus Johnson, who served as one of the mentioned cannon fodder black test cases. In Johnson’s case, his loan setup included a commission that constituted 55% of the independent charge. This figure was all-inclusive – it included interest and fees. And of course, he can’t lie about that relief—he was relieved for himself. He expressed sorrow for the effect of the ruling on the rest who will be denied valuable compensation.
“It’s weird. It’s a win, but it’s a really big bag of salt to go with it.” – Marcus Johnson
Consumer Voice co-founder Alex Neill issued a sharp statement on his extreme disappointment in the ruling. He said it made clear where consumers should be made whole. He highlighted how critical it was for the new financial watchdog to be able to move fast. This redress scheme will ensure drivers receive their rightful compensation.
“The financial regulator must now urgently act to introduce a redress scheme that ensures drivers get back what they’re owed.” – Alex Neill
Consumers were left feeling frustrated. In response to the ruling, a Treasury spokesperson stated their intent to work with regulators and industry stakeholders to assess the impact of this ruling on businesses and customers alike.
“We want to bring greater certainty for consumers, firms and investors as quickly as possible.” – FCA
