Latest news with #CloseBrothers
Yahoo
18 minutes ago
- Automotive
- Yahoo
Supreme Court car finance ruling: Martin Lewis explains action you need to take
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.
The Independent
20 minutes ago
- Automotive
- The Independent
Supreme Court car finance ruling: Martin Lewis explains action you need to take
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.
Yahoo
2 hours ago
- Automotive
- Yahoo
Voices: Why the car financing scandal could cause an even bigger pile-up than PPI
The car finance scandal already looks like PPI 2.0… but with an even bigger bill. Millions of motorists could soon be entitled to compensation on their hire-purchase agreements, which could cost the industry an eye-watering £44bn to put right, compared with the £38bn spent on Britain's costliest and longest-running consumer scandal, into payment protection insurance. All eyes are now on the Supreme Court, which is preparing to deliver a judgement over commissions paid to car dealers for fixing up finance agreements. The overwhelming majority of consumers take out loans when purchasing vehicles. A percentage of the interest typically goes to the dealer when they arrange these. Those commissions can be very substantial. Last year, the Court of Appeal ruled in favour of three motorists who said they were not informed that their dealers were being paid 25 per cent of the interest. The ruling, which came as a nasty shock to lenders and dealers, said it was unlawful for the latter to receive any commission without first obtaining the customer's 'informed consent'. Lenders Close Brothers and FirstRand, a South African outfit, took the case to the Supreme Court. If the Court of Appeal's decision is upheld, a huge number of borrowers will be eligible for compensation. One lender argued to me that 'the price is the price'. And let's be fair here: the buyer was under no obligation to have their motor dealer fix their finance. They always had the option to seek a better deal if unhappy with their quote (including the commission, whether or not they knew about it). More obviously dubious are what's known as discretionary commission arrangements (DCAs) under which brokers and dealers boosted the amount of interest to receive higher commission payments. The Financial Conduct Authority (FCA) banned the practice in 2021, and there now are 20,000 DCA complaints with the Financial Ombudsman Service. The FCA is in the throes of a review to ascertain whether consumers were overcharged. Lenders argue that this wasn't always the case. They say the dealer's primary motivation is always to secure the sale. They would, at least in some cases, seek to do this by finding financing that the consumer felt they could afford, even if this meant lowering their cut. However, it is clear that there was some sharp practice going on. Estimates suggest that up to 40 per cent of car finance deals could be eligible for compensation for DCA car loans taken out between 2007 and 2021. Here's the thing: the consequences of the Supreme Court ruling could be with us for years to come. Some of those could ultimately hurt consumers. PPI was a flat-out bad product, a rip-off that was frequently unnecessary, appallingly expensive and often sold to people who couldn't claim. But now it is gone. Car finance is different. It is a necessary product, just one with some bad features and sharp practice. An industry source I spoke to said this: 'If you were to design a new system from scratch today, you wouldn't include them. But what you have to remember is that people are still going to need it in future and that's when this could get messy.' Very messy. There are fears that smaller providers – and smaller dealers who relied on commissions to stay in business – could go bust in a worst case scenario. Larger firms, such as Lloyds (the market leader), Santander and Barclays will weather the storm. They've dealt with this sort of thing before. They know how the game works. They have handled mass compensation schemes in the past and money has been set aside to cover payments. They also have the capacity to claw back their losses through higher prices in future, especially if this drives a stake into the market and bankruptcies result, leading to less competition. Will we get to a place where some customers can't secure loans in future? If they're deemed risky? It is possible. True, new players typically come in where there's a profitable consumer base to serve. But they may steer clear of this market if they fear getting caught in a similar squall in future. The government – which has publicly called for a 'balanced ruling' after trying and failing to intervene in the case – is sufficiently concerned that it has reportedly investigated introducing legislation to overturn an adverse outcome. That would be hugely controversial. And the legislation would have to apply retrospectively. Why are ministers willing to risk the wrath of the consumer lobby? They fear that this is already hurting a spluttering economy by damaging the UK in the eyes of overseas investors. If the ruling effectively lobs a loaded financial grenade into the middle of this large and important market, it will do even more damage. The Supreme Court ruling is far from the end of this process. We're still at the beginning. It could ultimately take years to clear this up. The real winners in a worst case scenario look set to be the claims management companies (CMCs), which have been swamping YouTube, Instagram and other platforms with cringeworthy ads prospecting for clients. Unwanted texts and phone calls are sure to follow. A mass compensation scheme that cuts them out of the process would arguably be a win for both sides because CMCs only add costs, which someone has to pay. That could happen if the FCA is able to construct a scheme that automatically includes consumers unless they consciously opt out and decide to approach the courts. Most would probably prefer to avoid that.
The Independent
2 hours ago
- Automotive
- The Independent
Why the car financing scandal could cause an even bigger pile-up than PPI
The car finance scandal already looks like PPI 2.0… but with an even bigger bill. Millions of motorists could soon be entitled to compensation on their hire-purchase agreements, which could cost the industry an eye-watering £44bn to put right, compared with the £38bn spent on Britain's costliest and longest-running consumer scandal, into payment protection insurance. All eyes are now on the Supreme Court, which is preparing to deliver a judgement over commissions paid to car dealers for fixing up finance agreements. The overwhelming majority of consumers take out loans when purchasing vehicles. A percentage of the interest typically goes to the dealer when they arrange these. Those commissions can be very substantial. Last year, the Court of Appeal ruled in favour of three motorists who said they were not informed that their dealers were being paid 25 per cent of the interest. The ruling, which came as a nasty shock to lenders and dealers, said it was unlawful for the latter to receive any commission without first obtaining the customer's 'informed consent'. Lenders Close Brothers and FirstRand, a South African outfit, took the case to the Supreme Court. If the Court of Appeal's decision is upheld, a huge number of borrowers will be eligible for compensation. One lender argued to me that 'the price is the price'. And let's be fair here: the buyer was under no obligation to have their motor dealer fix their finance. They always had the option to seek a better deal if unhappy with their quote (including the commission, whether or not they knew about it). More obviously dubious are what's known as discretionary commission arrangements (DCAs) under which brokers and dealers boosted the amount of interest to receive higher commission payments. The Financial Conduct Authority (FCA) banned the practice in 2021, and there now are 20,000 DCA complaints with the Financial Ombudsman Service. The FCA is in the throes of a review to ascertain whether consumers were overcharged. Lenders argue that this wasn't always the case. They say the dealer's primary motivation is always to secure the sale. They would, at least in some cases, seek to do this by finding financing that the consumer felt they could afford, even if this meant lowering their cut. However, it is clear that there was some sharp practice going on. Estimates suggest that up to 40 per cent of car finance deals could be eligible for compensation for DCA car loans taken out between 2007 and 2021. Here's the thing: the consequences of the Supreme Court ruling could be with us for years to come. Some of those could ultimately hurt consumers. PPI was a flat-out bad product, a rip-off that was frequently unnecessary, appallingly expensive and often sold to people who couldn't claim. But now it is gone. Car finance is different. It is a necessary product, just one with some bad features and sharp practice. An industry source I spoke to said this: 'If you were to design a new system from scratch today, you wouldn't include them. But what you have to remember is that people are still going to need it in future and that's when this could get messy.' Very messy. There are fears that smaller providers – and smaller dealers who relied on commissions to stay in business – could go bust in a worst case scenario. Larger firms, such as Lloyds (the market leader), Santander and Barclays will weather the storm. They've dealt with this sort of thing before. They know how the game works. They have handled mass compensation schemes in the past and money has been set aside to cover payments. They also have the capacity to claw back their losses through higher prices in future, especially if this drives a stake into the market and bankruptcies result, leading to less competition. Will we get to a place where some customers can't secure loans in future? If they're deemed risky? It is possible. True, new players typically come in where there's a profitable consumer base to serve. But they may steer clear of this market if they fear getting caught in a similar squall in future. The government – which has publicly called for a 'balanced ruling' after trying and failing to intervene in the case – is sufficiently concerned that it has reportedly investigated introducing legislation to overturn an adverse outcome. That would be hugely controversial. And the legislation would have to apply retrospectively. Why are ministers willing to risk the wrath of the consumer lobby? They fear that this is already hurting a spluttering economy by damaging the UK in the eyes of overseas investors. If the ruling effectively lobs a loaded financial grenade into the middle of this large and important market, it will do even more damage. The Supreme Court ruling is far from the end of this process. We're still at the beginning. It could ultimately take years to clear this up. The real winners in a worst case scenario look set to be the claims management companies (CMCs), which have been swamping YouTube, Instagram and other platforms with cringeworthy ads prospecting for clients. Unwanted texts and phone calls are sure to follow. A mass compensation scheme that cuts them out of the process would arguably be a win for both sides because CMCs only add costs, which someone has to pay. That could happen if the FCA is able to construct a scheme that automatically includes consumers unless they consciously opt out and decide to approach the courts. Most would probably prefer to avoid that.
France 24
3 hours ago
- Automotive
- France 24
UK top court to rule on multi-billion pound car loan scandal
The loans, made available for 14 years from 2007, incentivised car dealers to offer higher interest rates in return for a bigger commission from banks. The Supreme Court will determine whether to uphold a judgment by the Court of Appeal last year that ruled it was unlawful for car dealers to receive a commission on loans without sufficiently informing borrowers. It is estimated that millions of drivers would be eligible for compensation should the Supreme Court side with borrowers, following its three-day hearing in April. One case involves Marcus Johnson -- who in 2017 bought a Suzuki Swift from a car dealer in Cardiff for £6,500 ($8,560 today) including loan costs -- unaware that interest paid on the loan amount would fund commission of more than £1,600. When the Court of Appeal ruled in favour of Johnson, ordering South African lender FirstRand Bank to refund the commission plus interest, it sparked panic across the finance sector. British banks have set aside considerable sums in preparation for the ruling, including Lloyds, which has earmarked nearly £1.2 billion. The total estimated cost for banks varies, but HSBC bank analysts suggested before the trial that it could come to £44 billion. Since then, analysts have revised down the potential exposure of banks, British media reports suggesting a figure of around £11 billion. In the three cases being judged by the Supreme Court, consumers are also facing off against British bank Close Brothers. The Financial Conduct Authority, which banned undisclosed commissions in 2021, could mandate a collective automatic compensation programme should the court sides with borrowers. Analysts said that Britain's Labour government may be concerned about the impact on banks' willingness to provide credit amid economic uncertainty caused by US tariffs and geopolitical unrest.
