Banks in the United Kingdom may need to pay billions of pounds in compensation to potentially millions of drivers in the country if the British Supreme Court upholds a ruling by judges at the Court of Appeal over commissions paid on car loans.
According to the BBC, it was unanimously agreed upon that a lender paying commission to a dealer without the buyer’s knowledge or consent (including if the information was hidden/buried in the terms and conditions of the loan) is considered unlawful.
The issue dates back to 2021, when the city regulator, the Financial Conduct Authority, also known as the FCA, “banned deals in which the dealer received a commission from the lender, based on the interest rate charged to the customer,” said the BBC, adding that “these were known as discretionary commission arrangements (DCAs).”
The controversy revolves around the idea that this created an incentive for consumers to be charged higher interest rates. Discretionary commission arrangements were banned that same year, but the decision by the Court of Appeals widened the net to include any car finance commissions.
European media outlet France 24 said the government tried to intervene due to concern over the potentially significant economic fallout the payouts would have, and the impact it would have on the automotive industry. The Supreme Court rejected the attempt in February.
“Such a substantial sum could limit banks’ ability and willingness to lend and provide credit at a time when the economic outlook remains uncertain,” said AJ Bell investment director Russ Mould in a statement, according to France 24. “This may be why the government is seeking to intervene.”
The case was heard by the Supreme Court in April, with court judges expected to deliver a judgement in July. France 24 said banks have earmarked “considerable sums” in preparation for the ruling. Some analysts believe banks could pay out as much as £16 billion, while others have estimated the amount to be within the £44-billion range.
