Lenders will not have to pay compensation to millions of drivers after the Supreme Court ruled that they are not liable for hidden commission payments in car finance schemes.
Supreme Court president Robert Reed reversed a Court of Appeal ruling last year that sent shockwaves through the car dealer and motor finance industry.
The Court of Appeal had ruled that commission payments to car dealers, as part of finance arrangements without the motorist’s fully informed consent, were unlawful.
Mr Reed said the Court of Appeal had “failed to understand that the dealer has a commercial interest in the arrangement between a customer and a finance company.”
The door is still open to a more limited compensation scheme being considered by the Financial Conduct Authority. The regulator is likely to announce a central compensation scheme for those consumers whose loan agreement had a “discretionary commission arrangement” – a type of loan that has now been banned.
A Treasury spokesperson said: “We respect this judgment from the Supreme Court and we will now work with regulators and industry to understand the impact for both firms and consumers.
“We recognise the issues this court case has highlighted. That is why we are already taking forward significant changes to the Financial Ombudsman Service and the Consumer Credit Act.
“These reforms will deliver a more consistent and predictable regulatory environment for businesses and consumers, while ensuring that products are sold to customers fairly and clearly.”
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