Supreme Court car finance ruling: Martin Lewis issues urgent warning

Martin Lewis has issued advice to motorists as the Supreme Court rules on whether millions could be owed compensation over hidden car finance commission payments.

The Supreme Court will rule on Friday (1 August) whether millions of motorists could be entitled to compensation on their hire-purchase agreements signed before 2021.

The Court of Appeal ruled that “secret” commission payments to car dealers as part of finance arrangements made before 2021 without the motorist’s fully informed consent were unlawful, back in October last year.

The court found that three motorists, who had all purchased their cars before 2021, had not been informed either clearly enough or at all that the car dealers, acting as credit brokers, would receive a commission from lenders for introducing business to them, and were therefore entitled to compensation.

Two lenders, FirstRand Bank and Close Brothers, have challenged that ruling, calling it an “egregious error”.

Writing on X, Mr Lewis urged drivers not to act yet: “People asking me ‘what to do’. The very strong answer right now is nothing. This will all play out tonight then likely over the next six weeks or so and then we’ll have a good idea. Do not sign up to a claims firms. Don’t do anything now.”

The Financial Conduct Authority (FCA) has warned the court that the earlier ruling “goes too far”, but said it could still launch a redress scheme covering motorists affected by so-called discretionary commission arrangements, which were banned in 2021.

The outcome of the ruling could have major consequences for the industry, with the FCA telling the Supreme Court last year that almost 99% of the roughly 32 million car finance agreements entered into since 2007 involved a commission payment to a broker.

The three drivers, Marcus Johnson, Andrew Wrench and Amy Hopcraft, all used car dealers as brokers for finance arrangements for second-hand cars, all worth less than £10,000.

Only one finance option was presented to the motorists in each case, with the car dealers making a profit from the sale of the car and receiving commission from the lender.

The commission paid to dealers was affected by the interest rate on the loan.

The schemes were banned by the FCA in 2021, with the three drivers taking legal action individually between 2022 and 2023.

After the claims reached the Court of Appeal, three senior judges ruled that the lenders were liable to repay the motorists the commission, as there was “no disclosure” of the commission payments in Ms Hopcraft’s case, and “insufficient disclosure” in the case of Mr Wrench.

In Mr Johnson’s case, the judges found that he had received “insufficient disclosure” about the commission to give “fully informed consent” to the payment.

Lady Justice Andrews, Lord Justice Birss and Lord Justice Edis said that while each case was different, “burying such a statement in the small print which the lender knows the borrower is highly unlikely to read will not suffice” as enough to inform a motorist about the commission properly.

If justices dismiss the challenge, it is unclear how many people could be entitled to compensation.

If they side with the lenders, then it is likely to significantly limit the scope of potential payouts to motorists.

The FCA has said it will confirm within six weeks of the judgment whether it is planning to launch a redress scheme.