Motorists ‘could claim billions’ after car finance commission refund ruling

Motorists have won a landmark legal decision against companies that offer car financing offers.
Court of Appeal judges ruled in favor of three car buyers who had claimed hidden commissions in their deals added thousands of pounds to the cost.

“Both brokers and lenders served consumers very poorly,” the judges said.

They said consumers have the right to know the commission agreements between the lender and the car dealer to ensure fairness.

until a rule change in 2021Hidden fees on car purchase deals meant customers could end up paying many thousands of extra pounds in interest on a loan to buy the vehicle.

The four judges held that car dealers had a legal duty to act in the interests of consumers and not themselves when entering into car finance agreements.

They said it was not enough to hide the details of the commission in the terms and conditions of the contract. The ruling could open the door for many more consumers to seek redress.

Lawyers for the clients who brought the case – nursing student Amy Hopcraft, factory supervisor Marcus Johnson and postal worker Andrew Wrench – argued that distributors had a duty to provide impartial information or advice.

They asked for the return of the hidden commission paid to merchants as credit intermediaries.

The court agreed that the car dealers were the sellers, but they also acted as credit intermediaries on behalf of the buyers. As such, they had a duty to seek and offer financing that was competitive and appropriate to the needs of clients.

In 2021, the Financial Conduct Authority (FCA) watchdog banned arrangements under which firms could receive commissions linked to the interest rate paid by customers, saying the practice incentivized car dealers. increase customer borrowing costs.

Thousands of drivers complained that they had been overcharged. The companies rejected many of the complaints, arguing that they had not acted unfairly or caused losses to their customers.

He Financial Ombudsman Service examined some complaints rejected by the companies and ruled in favor of the complainants in two decisions. Some consumers also filed claims in the county courts, some of which were upheld,

The FCA has been reviewing landmark cases since January. It has warned lenders to prepare for additional costs as part of a possible compensation plan.

It is carrying out its own investigation into the car finance sector and looks likely to make lenders return fees.

The watchdog has been inundated with complaints from consumers who claim their loans were unfairly priced. More than one million claims have been submitted through Martin Lewis Money Saving Expert Site.

The FCA said it has stopped the time firms have to provide a final response to customers about car finance complaints involving a discretionary commission arrangement (DCA). “We did this to avoid messy, inconsistent and inefficient outcomes for consumers and knock-on effects on businesses and the market as we review whether auto finance customers have been overcharged due to past use of DCA.

He said he had taken note of the Court of Appeal’s ruling and was carefully considering its decision.

Separately, law firms are taking action on behalf of some drivers. Manchester-based Consumer Rights Solicitors, who acted in this case, believe the compensation bill could rise to £42bn.

Shares in Close Brothers, the company that provided the financing, fell sharply following the verdict.
The company said: “The financial impact of the Hopcraft case alone is not material,” but warned that “the ruling may set a precedent for similar claims, which may…result in significant liabilities for the group.”

He did not agree with the court ruling and will appeal to the Supreme Court. It said it was pausing new car finance business in the UK while it reviews its processes.

Kavon Hussain, of Consumer Rights Solicitors, said: “These hidden fees meant that the consumer could pay anything from a few hundred pounds to many thousands of dollars extra to a lender through interest payments, for the lender to then You will pay this to the distributor. “It was, and still is, a broken system.”