Car finance commission court decision threatens huge compensation bills

Carmakers and finance companies are reeling from an appeal court decision in favor of consumers, who said “secret” commissions paid to dealers are inconsistent with UK consumer law.

The ruling states that to comply, all financial arrangements involving commissions must be fully disclosed to clients and their consent must be obtained before a contract can be entered into. In other words, unless a credit broker or car dealer tells customers how much commission they are earning on a finance deal, the deal can’t go ahead.

According to a letter to distributors of sling According to Europe CFO Richard Winter, and first reported by the Car Dealer website, the ruling means dealers and car finance companies across the country are looking at existing deals to see if they can be completed. “Car finance lenders across the sector will now consider whether they can conduct finance business before changing their systems in line with the ruling,” Winter says.

“As a result of this ruling, Honda Finance will suspend commercial payments until further notice while we continue to evaluate the ruling and its impact. There will be no exceptions to this.”

Honda has asked dealers for support in “managing customer expectations” after canceling new vehicle deliveries scheduled for the weekend until further notice. However, the implications extend far beyond dealerships, because the latest ruling raises the specter of possible billions of pounds in compensation for customers with existing car finance deals. Some analysts have estimated the potential payout figure at £16 billion, although one of the finance companies named in the appeal court ruling, Close Brothers, has indicated it will challenge the ruling. Meanwhile, Close Brothers’ share price has taken a hit, as has that of Lloyds Bank, owner of Black Horse Finance, which is said to be “assessing the potential impact” of the ruling.

Companies are also turning to the Financial Conduct Authority for advice, but the UK’s financial watchdog appears to have been caught off guard too. “We take note of the judgment of the Court of Appeal of 25 October 2024, in Johnson v Firstrand Bank Ltd, Wrench v Firstrand Bank Ltd and Hopcraft v Close Brothers Ltd, and are carefully considering its decision,” is the current official statement.

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