UK Supreme Court Set to Rule on Car Finance Scandal

LONDON, UK — The UK Supreme Court is expected to announce its ruling on a significant £44 billion car finance scandal that could allow millions of motorists to seek compensation for mis-selling. The verdict will be delivered at 4:35 PM this Friday, after financial markets close.

The case stems from a ruling by the Court of Appeal last October, which found that broker payments for arranging car loans without disclosing terms to borrowers were unlawful. FirstRand Bank and Close Brothers, two lenders involved, appealed this decision to the Supreme Court.

Most new cars, around 90%, and many used cars are financed via loans. If the Supreme Court upholds the earlier ruling, it could mean substantial compensation claims for affected customers, resulting in large liabilities for lenders.

Lloyds Banking Group, particularly through its Black Horse division, is notably exposed and has already set aside funds for possible compensation. Meanwhile, the Financing & Leasing Association, representing car lenders, contends they have acted lawfully throughout this issue.

Many vehicle buyers are already in line for compensation if they purchased cars before 2021 under discretionary commission arrangements (DCAs), which incentivized dealers to secure higher-rate loans for customers.

The Financial Conduct Authority (FCA) plans to create a compensation scheme for those mis-sold loans through DCAs and will confirm its intentions within six weeks after the Supreme Court ruling.

However, if the justices affirm the Court of Appeal’s decision entirely, it would greatly expand the pool of eligible claimants. Conversely, if they favor the lenders, the potential compensation for motorists will be significantly smaller.

Earlier this year, the Supreme Court expressed concerns that massive compensation payouts could adversely impact the car market. The Treasury has called for a “balanced judgment” that compensates mis-sold consumers while sustaining the car finance sector’s support for buyers.