Fears of car finance scam payout as row grows

By his own admission, Marcus Johnson’s metallic blue Suzuki Swift was an unremarkable car – bought after he passed his driving test.

But how this run-of-the-mill vehicle was sold is now at the center of a far more remarkable, multi-billion pound story.

Lenders and dealers have been accused of hiding commission payments when cars were bought on finance deals.

A recent one The decision of the Court of Appeal in the case of Mr. JohnsonAnd two other car buyers raised the prospect of receiving millions in motorcycle compensation.

Not everyone agrees with this conclusion.

As MPs prepare to question the financial regulator’s boss over his role, there seems to be consensus in the industry that the matter should be decided only by the highest court.

If this happens, it can make payments more doubtful, or at least delay them for several months.

Mr Johnson, from Cwmbran in Torfan, South Wales, was 27 when he was looking for his first car in 2017.

He had been cycling from his job as a factory supervisor. He and his fiancee, now wife, Christy, were taking buses and taxis to visit family and friends after moving home.

Buying a car made sense. So did a dealership he “heard 10 to 15 times a day” advertised on the radio at work.

He took the Suzuki for a test drive, decided to buy it and paid the deposit.

“I thought it was a good decision financially to get a new car, so there would be less problems,” he says.

Mr Johnson earned just over £13,000 a year, so the finance included a hire purchase agreement and an additional personal loan.

He was unaware that the finance provider would pay the dealer a commission of £1,650 – a quarter of what he had borrowed.

“I always thought car dealerships made a profit on the cars they sold and not by arranging finance,” he said in his witness statement.

Later, he saw a post on Facebook asking him to fill out a claim form about such a deal. After discussions with a lawyer, he says he realized the commission was “ridiculous.”

“I had no idea before. Commission as part of the industry is not necessarily a bad thing,” he says. “But it was kept out of sight. If they’re cheating customers, that’s disgusting to me.”

His case went to court. He says he almost missed the date after the notification went to his email’s junk folder. He lost.

But at the Supreme Court of Appeal, his case was benched by two similar cases, and all three judges unanimously found in his favor.

The other two car buyers involved were Andrew Wrench, described as a “postman with a penchant for fast cars”, and student nurse Amy Hopcroft.

Mr Wrench has since spoken about how shocked he was by the impact of the decision, but it was the principle of fairness that got him fired.

The same is true of the surprised Mr. Johnson, who never thought his case would make it to court. But he says he’s someone who doesn’t like to think about losing people.

“And a lot of people who didn’t have the money to buy a car got ripped off,” he says.

The judges’ decision was a win for all three, but – more significantly – opened the door to many, many more motorist claims.

In the results of A clear, 46-page decision There are three more obvious words: “fully informed consent”.

They ruled that it would be illegal for a lender to pay a commission to a dealer without the buyer’s fully informed consent.

In other words, customers should be clearly told how much commission will be paid, and agree to it, without burying these details in the loan terms and conditions.

Bearing in mind that 80% or 90% of cars are bought on finance – that’s about two million vehicles a year, then many past and present deals are more likely to fail this test.

Analysts have suggested that millions of buyers could receive hundreds of pounds in compensation each. The total bill is estimated at up to £30bn.

Banks have set aside hundreds of millions of pounds for potential compensation. Some lenders also temporarily halted new deals. The case also created a stir in the car industry and the finance sector.

Some commentators have suggested that this may extend to other “big ticket” items bought on finance than cars.

Kevin Durkin, of HD Law, who represents Mr Johnson, says the appeal court’s decision was clear, and that payments should begin to be redressed where necessary.

Failure to do so means “justice delayed is justice denied”.

“The bottom line in all of this is that it’s the customer who is suffering financially,” he says.

However, the story is far from over.

David Postings, chief executive of UK Finance, which represents creditors, told MPs last week that “the ruling is subject to different interpretations”.

The defendants in the case of Mr Johnson, Mr Wrench and Ms Hopcroft have asked the Supreme Court to look into it.

Banks have previously seen success in the Supreme Court with respect to large-scale compensation claims. In 2009, it found in his favor on the issue Bank overdraft charges.

However, the banks had to pay out billions of pounds over the PPI (Payment Protection Insurance) scandal.

The city regulator, the Financial Conduct Authority, has written to the Supreme Court seeking an early decision on motor finance given the potential impact on the market and consumers.

In the meantime, he will face questions – when key figures, including Chief Executive Nikhil Rathi, appear before the Treasury Committee on Tuesday.

In 2021, the FCA banned deals in which the dealer received a commission from the lender, based on the interest rate charged to the customer. This, he said, provided an incentive for the buyer to charge a higher rate.

By banning these so-called discretionary commission arrangements, it announced it would save drivers £165m a year.

Since January, it has been considering whether compensation should be paid to those on those deals before 2021.

However, it did not decide to broadly ban commissions or fees, or determine how dealers must demonstrate that they are receiving payments from borrowers.

It may now face the wrath of motorists who say it should have done more to protect them, as well as lenders and dealers who feel the regulator has continued to pay them commissions. Green light has been given to keep.

It is planning. Extend time for dealers to deal with complaints..

It wants any mass compensation, if it happens, to be done in an orderly manner. The nature of any such redress is currently uncertain.

So, for now, disgruntled drivers who think they might have a claim are stuck at a red light with no clear idea of ​​when the lights will change.