A significant ruling by the UK Court of Appeal has declared it unlawful for car lenders to pay undisclosed commissions to dealers, potentially leading to billions in compensation for borrowers. The case involved FirstRand Bank and Close Brothers, who paid commissions to car dealers without informing customers—a practice known as discretionary commission arrangements (DCAs), banned in 2021 by the Financial Conduct Authority (FCA). The court emphasized borrowers’ right to full disclosure of all loan-related costs and commission details to make informed decisions.
Close Brothers, one of the lenders involved, announced a temporary halt to car loans after its stock dropped by 15%. Both FirstRand and Close Brothers plan to appeal the decision. The FCA is currently investigating the impact of commission arrangements between 2007 and 2021 and may consider a compensation scheme. Consumer advocate Martin Lewis highlighted this case as potentially one of the largest compensation schemes since the PPI scandal, which cost banks over £50 billion. Some experts estimate the car finance industry’s potential exposure to be between £8 billion and £13 billion.
The Finance and Leasing Association (FLA) has called for immediate FCA review, citing the ruling’s extensive implications beyond motor finance. Key banks like Lloyds Banking Group, which has set aside £450 million for potential liabilities, may face further provisions.
Reference: Consumers win UK car finance case that could lead to billions in compensation
Consumers Win Landmark Case on Hidden Car Finance Fees
Court ruling mandates transparency in car finance commissions, potentially leading to billions in compensation for UK borrowers.
