Car Finance Commission Case Heads to Supreme Court – Government Blocked from Intervening
The Supreme Court rejected Chancellor Rachel Reeves’s attempt to intervene in a landmark car finance lawsuit that could affect millions of UK car buyers.
The case challenges hidden dealer commissions in car finance deals – fees added without buyers’ knowledge that could lead to widespread compensation claims.
Sales staff, acting as brokers, allegedly increased interest rates to boost their commission payments. The Court of Appeal ruled lenders must compensate customers when these commissions weren’t disclosed, prompting banks to appeal to the Supreme Court.
“We respect the court’s decision to not grant our application to intervene… and will monitor it closely,” a Treasury spokesperson said.
The Government’s attempted intervention followed Downing Street’s concerns about the potential impact on UK banks, despite supporting customer compensation rights.
Three customers initiated the original appeals against Close Brothers and Firstrand Bank after lower courts rejected their claims. The Court of Appeal’s unanimous verdict established that brokers must obtain “fully informed consent” from customers before receiving lender commissions.
This ruling disrupts a traditional practice where dealers earn commissions from banks for arranging car finance. Many dealers now disclose commission rates to comply.
Industry experts compare the situation’s scale to the Payment Protection Insurance (PPI) scandal of the 2010s.
Lloyds Bank, which owns car finance provider Black Horse, has allocated £450 million for legal costs and potential compensation.
The Financial Conduct Authority’s investigation earlier this year revealed over 10,000 complaints about discretionary commission arrangements (DCAs) between 2007 and 2020. DCAs allowed dealers to adjust HP and PCP interest rates to increase their commissions.
The Supreme Court will hear the case in April. Both automotive and financial sectors await the verdict, which could fundamentally change how car finance is sold in the UK.
