The UK Supreme Court has granted permission for Close Brothers and FirstRand Bank to appeal a pivotal Court of Appeal ruling that deemed undisclosed commissions in car finance agreements unlawful. This decision sets the stage for a legal battle with profound implications for the automotive finance industry and consumer rights.

The forthcoming appeal, scheduled for the Hilary Term (13 January to 16 April 2025), addresses the legality of car dealers receiving undisclosed commissions from lenders without obtaining informed consent from customers. The Financial Conduct Authority (FCA) has emphasized the potential industry-wide impact, with compensation claims possibly reaching £30 billion.

In October 2024, the UK Court of Appeal ruled it unlawful for car dealers to receive undisclosed commissions from lenders without informed customer consent. The ruling emerged from consolidated cases involving borrowers challenging the transparency of their car finance agreements with FirstRand Bank and Close Brothers. The court emphasized the necessity for consumers to be fully informed about all material facts influencing their borrowing decisions, including commission details.

In December 2024, the Supreme Court agreed to hear appeals from Close Brothers and FirstRand Bank against the Court of Appeal's decision. The FCA requested an expedited process due to the potential industry-wide impact and the possibility of a £30 billion compensation bill. The appeal is scheduled for the Hilary Term, running from 13 January to 16 April 2025.

In November 2024, the FCA consulted on proposals to extend the deadline for lenders to handle motor finance complaints related to non-discretionary commissions, aiming for orderly compensation processes and consistency in outcomes. The FCA also banned fixed commission payments in 2021 and encourages dissatisfied customers to lodge complaints. In December 2024, the FCA welcomed the Supreme Court's decision to hear the appeal and is considering whether to formally intervene in the case to share its expertise.

Close Brothers announced plans to set aside £165 million to cover potential costs related to the ruling, including legal expenses and possible customer compensation. Other lenders, such as Lloyds Banking Group and Banco Santander's UK operations, have also made substantial provisions in anticipation of potential compensation costs. Moody's estimates that the industry-wide costs could reach £30 billion.

The ruling underscores the importance of transparency and informed consent in financial agreements, particularly in the car finance sector. Consumers are now more aware of their rights and the potential for redress in cases of mis-selling. The potential compensation payouts could provide significant financial relief to affected borrowers but may also lead to increased scrutiny and regulatory oversight of commission structures in the financial industry.

The Supreme Court's decision to hear the appeal marks a critical juncture in the ongoing debate over transparency and fairness in the car finance industry. The outcome of this case will have far-reaching implications for lenders, car dealers, and consumers alike, potentially reshaping industry practices and consumer protection standards.