Billions of pounds will be at stake for banks this week as the UK’s highest court hears an appeal against a judgment that stunned car finance providers by ruling many of the commissions they paid to motor dealerships were unlawful.
The Supreme Court hearing, which starts on Tuesday, has wide-ranging legal ramifications stretching beyond the auto market to many areas of consumer finance. Its outcome will determine whether lenders are flooded with consumer claims seeking vast sums in compensation.
Last November, the Court of Appeal sent tremors through the UK financial services market by ruling it was unlawful for lenders to pay “secret” or partially hidden commissions to car dealerships without ensuring customers had given their informed consent.
The case was brought by a factory supervisor in Wales, a trainee nurse in Hull and a postman in Stoke-on-Trent, over second-hand cars they bought with financing from Close Brothers and MotoNovo Finance, which is part of South Africa’s FirstRand Bank.
If the judges reject the lenders’ appeal, it could upend the £40bn market for financing the 2mn cars that are bought with loans in Britain each year, and disrupt other areas such as finance for white goods. The Treasury was so concerned about the fallout that it made an unsuccessful attempt to intervene in the case earlier this year
“This is without question one of the most significant Supreme Court cases in recent memory,” said Tom Webley, a London-based partner at law firm Reed Smith. “There are a wide range of businesses that provide credit through commission-earning intermediaries and all of them could be affected by this judgment.”
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