Lenders Win, Consumers Lose in Car Finance Decision

Car finance lenders don’t have to pay tons of cash to folks who thought they got tricked. Last Friday, the judge Lord Robert Reed said car buyers didn’t get ripped off by dealers hunting for fat commissions. His ruling lets lenders fight back against future lawsuits from customers, pretty much stopping huge payouts.

This whole thing got sorted out in the UK’s top court since April, all about secret commissions dealers added to car loans without telling buyers. Sometimes, salespeople acting like loan brokers jacked up interest rates to pocket more money. The Supreme Court stepped in after another court said lenders should pay up if buyers didn’t know about those sneaky commissions.

How’d this mess start?

Three customers sued Close Brothers and FirstRand Bank, saying they got scammed on car loans. Lower courts had tossed out their cases before. But judges all agreed this time, saying, “Brokers can’t legally take commissions from lenders unless the customer totally knows and agrees.” That means dealers can’t make extra cash on loans unless buyers say it’s cool. This decision flipped the car and banking world upside down, and people are calling it the worst finance scandal since PPI blew up years ago.

What was on the line for lenders?

Before this ruling, dealers getting commissions from banks for selling car loans was just how things worked. Some car companies started telling customers about commission rates to keep things smooth. Lloyds Bank, which owns Black Horse, a huge car loan company, was ready for trouble. Back in February, they saved up £450 million for legal fights and payouts.

This all came after the Financial Conduct Authority (FCA) looked into shady commission deals from 2007 to 2020, sparked by over 10,000 complaints. Those deals let dealers mess with interest rates to earn extra commission on car loans like hire purchase or personal contract plans. In one case, the FCA found Black Horse let a dealer pick an interest rate between 2.49% and 5.5%. The dealer chose the max, 5.5%, keeping half the interest as commission without telling the customer a thing.

Source: AutoCar UK
Image: CarDealerMagazine