SC Blocks Attempts to Intervene in Car Loan Commissions Scandal

Government’s Attempt to Intervene on Car Finance Mis-selling Scandal Rejected

Brushing aside attempts at interference, the UK Supreme Court, on February 18, turned down the government’s intervention in the car finance mis-selling scandal. This controversy on the government’s intervention has stirred up mixed opinions from both the private and public sectors. 

The Reeve’s car finance claims intervention issue has been even more controversial as the government does not normally step in on issues and concerns like this. However, the treasury expressed its concern about the possible negative impact that this compensation bill will cause on the UK’s economy, particularly in the car finance industry. It has argued about the economic harm should the ruling favor consumers, and require lenders to pay out sums of money for compensation. 

Alongside the rejected applications for appeal were key parties – Finance and Leasing Association (FLA) and Consumer Advocacy Group Consumer Voice. The Supreme Court only allowed intervention from the Financial Conduct Authority, the regulatory that acts as an intermediary in the motor finance scandal commission issues, and the National Franchised Dealers Association (NFDA).

Impact on Complaints: What Consumers Need to Know

Despite the rejection of the government’s intervention, there is no impact on complaints already submitted, and consumers can still submit new claims as normal. As things currently stand, all car finance commissions that are not explicitly disclosed are deemed to be illegal. If you believe that your commission arrangement was not properly explained, you may be entitled to compensation, and you can still lodge a complaint with your car finance provider.

Although firms are not required to respond to complaints immediately due to a pause on dealing with car finance claims, submitting complaints now ensures that your case is logged. This could help protect you from being timed out should a final decision be delayed until after the Supreme Court ruling.

To assist consumers, a free Car Finance Reclaim Tool and guide is available, which outlines the process for submitting complaints and claiming compensation for mis-sold commission.

A Brief Timeline of Car Finance Mis-Selling

In January 2024, the FCA launched a large-scale investigation on the hidden discretionary commission arrangements (DCAs), sparking attention amongst the car finance industry, lenders, dealers, and consumers alike. Notably, about 2.5 million complaints were filed to the FCA, which only meant this unfair arrangement has become a common practice among lenders. Arrangements like this have allowed brokers and dealers to put higher interest rates and earn more via commission, depending on the rate they’ve charged.  

In the initial plan, investigation results should have concluded in September 2024. However, this timeline was postponed to give the Supreme Court more time to decide on a ruling on the commission disclosure case.

In October 2024, the Court of Appeal issued a ruling that disrupted the entire commission system for lenders. The ruling said that car sales firms would not be allowed to receive commission fees from lenders without the consent of customers, and doing so would result in an unlawful practice. This ruling made it more likely that consumers who were charged commission without proper disclosure might be entitled to compensation. As a result, the car finance firms involved in the case, such as Close Brothers and MotoNovo, appealed the decision to the Supreme Court. This hearing is set to take place in April 2025.

FCA’s Regulatory Pause and Implications for Complaints

In December 2024, the FCA extended its pause on firms addressing car finance complaints to include all commission complaints, not just DCAs. As a result, car finance providers are not required to provide final responses to motor finance non-DCA commission complaints that were received on or after October 26, 2024, until December 4, 2025.

This pause has extended the time for consumers to submit their complaints about undisclosed commissions. Final decisions from the finance firms will be awaited until April 2025, after the Supreme Court Ruling. However, filing complaints now is still important to ensure that claims are logged in time.

Market Reaction to the Government’s Rejected Intervention

The treasury’s rejection only compounded the problem for lenders, with shares declining by 8.5% since the news came out – amongst affected were huge lenders, Close Brothers and Lloyds. The government fears this compensation bill could soar up to £44 billion, just close to the scale of the Payment Protection Insurance (PPI) mis-selling scandal.

Among those who expressed disappointment over the turnout of event for the mis-selling scandal was Gary Greenwood – a banking analyst at Shore Capital. His stance was that any development in this case only brings greater uncertainty to the situation. The two sides of this issue have raised concerns about balancing consumer protection with financial stability, and the long-term impact no the car finance market. 

Consumer and Industry Group Reactions

Lenders and Financial analysts have made their clear ground on the concerns about the economic impact this car loan commissions scandal can cause. Lenders setting aside funds for compensation is only the tip of the iceberg, as once this compensation bill has passed, chances are getting car finance in the future will be much more difficult. Meanwhile, consumer groups are equally vocal about the need for greater transparency and fairness in the car finance sector. In response to the court’s ruling, co-founder of Consumer Voice – Alex Neil, aired his frustration over the court’s refusal for the group to intervene. He emphasised that the vast majority of car finance customers are concerned about undisclosed commission payments by dealers.

The Financial Conduct Authority (FCA) and the National Franchised Dealers Association (NFDA) will continue to intervene in the case. The NFDA, which represents car dealerships, maintains that commission arrangements are a standard and acceptable part of the business model, while consumer groups argue that such arrangements need to be fully disclosed to protect buyers’ trust.

Looking Ahead: What’s Next?

The Supreme Court hearing on April 2025 will carve changes in the motor finance industry, especially with the double-edged implications it may cause the entire sector. This ruling poses huge impact on both the financial sector and consumers, potentially reshaping the way car finance agreements are structured in the UK. Hence, consumers are still encouraged to submit their complaints, so they get to be in the queue for the potential car loan payout and compensation, as it may take time to claim. 

The situation remains fluid, with a final resolution not expected until late 2025, following the Supreme Court ruling and the FCA’s delayed investigation outcomes. For now, car finance customers who believe they have been affected by mis-sold commission arrangements should act quickly to secure their claims.