UK Supreme Court to Hear Appeal on Motor Finance Commission Ruling

The UK Supreme Court is poised to hear a pivotal appeal that could reshape the motor finance industry, as lenders challenge a ruling that deemed undisclosed commission payments to car dealers unlawful.

In October 2024, the UK Court of Appeal determined that it was illegal for car dealers to receive commissions from lenders without obtaining the informed consent of customers. This decision has exposed the motor finance sector to potential compensation claims estimated at up to £30 billion. Lenders Close Brothers and FirstRand Bank have been granted permission to appeal this ruling, with the Supreme Court hearing expected by April 16, 2025. The outcome could have significant implications for the financial sector and consumer rights.

The Court of Appeal's decision centered on the practice of paying "secret" commissions to car dealers without disclosing the sum and terms to borrowers. This ruling was based on cases involving borrowers against FirstRand Bank and Close Brothers. The judgment has prompted significant industry responses, including Lloyds Banking Group suspending commission payments across its £15 billion motor finance division.

In December 2024, the UK Supreme Court granted permission for Close Brothers and FirstRand Bank to appeal the October ruling. The hearing is expected to take place by April 16, 2025, with a decision anticipated in the summer or later. The Financial Conduct Authority (FCA) has been actively involved, consulting on extending deadlines for handling related complaints and considering intervention in the appeal process.

The FCA has proposed extending the time firms have to respond to motor finance complaints involving non-discretionary commission arrangements and is considering formal intervention in the Supreme Court appeal to share its expertise. The FCA's chief executive, Nikhil Rathi, stated, "We are encouraging firms to engage with us as they consider the impact the Court judgment has on their products and services, and we are grateful for the way firms have acted responsibly so far."

The potential compensation claims, estimated at up to £30 billion, could have significant financial repercussions for the motor finance industry. Banks such as Lloyds, Close Brothers, and Barclays have set aside substantial funds in anticipation of potential costs. The uncertainty surrounding the outcome of the Supreme Court appeal has also affected investor confidence, with fluctuations in bank share prices.

The ruling underscores the importance of transparency in financial transactions and the protection of consumer rights. If the Supreme Court upholds the Court of Appeal's decision, it could lead to a significant redress scheme, providing compensation to consumers who were unaware of the commissions paid to dealers. This case highlights the need for clear disclosure practices in the financial industry to maintain consumer trust.

As the Supreme Court prepares to hear the appeal, the financial industry and consumers alike await a decision that could have far-reaching implications for the motor finance sector and beyond.