Claims businesses and consumer protection groups have described the Supreme Court’s judgment on motor finance claims as ‘disappointing’ - while other commentators said the ruling has staved off ‘the biggest consumer compensation crisis in UK history’.

Last Friday the court ruled partially in favour of lenders over car buyers seeking redress for alleged mis-selling. However in one of the three appeals, the court found the relationship between lender and consumer to be ‘unfair’ based on the size of the commission, the failure to disclose the commercial tie between the financial company and dealer, and the customer’s failure to read any of the documents provided.

The Financial Conduct Authority this morning announced plans to consult on an industry-wide scheme to compensate customers who were treated unfairly. The scheme is designed to avoid the need to use a claims management company or law firm. 

However Darren Smith, managing director of Blackburn-based firm Courmacs’, which is acting for 1.5 million car buyers, said: ‘The court has…not ruled on the position where a discretionary element was applied to the commission. This still leaves many victims who will be entitled to redress but the story does not end here. The next chapter will be in September when the Court of Appeal will be hearing a case relating to the way the financial services ombudsman has dealt with discretionary commission arrangements.'

Referring to the FCA’s potential redress scheme, he said: ‘The FCA’s indications on the level of compensation are also concerning from a consumer detriment perspective. The complexity and uncertainty for individual victims now makes it more important than ever that they are properly advised by qualified solicitors who are able to take cases to court, unlike CMCs. Above all, it is vital that victims have choice and access to justice.’

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Robert Whitehead, chair of Manchester-based Barings Law, described the Supreme Court decision as a ‘major blow to consumer protection and a missed opportunity to address one of the financial sector’s most troubling practices’.

He added: ‘The court had the chance to stand up for fairness and transparency but instead has handed a victory to the finance industry. At Barings Law, we’ve been proud to lead efforts to bring these claims forward. We pioneered the use of omnibus claim forms to make the process affordable and accessible for everyday people, not just those who could afford years of litigation. Sadly, [the] decision leaves many victims without a clear path to justice.

‘Despite this setback, we remain committed to our clients and to fighting unfair financial practices wherever we find them. This ruling may slow things down, but it will not stop the movement toward greater transparency in the car finance industry. People deserve to know the true cost of the financial products they’re sold, and they deserve to be treated fairly.’

Alex Neill, co-founder of consumer protection group Consumer Voice, maintained that the judgment ‘doesn’t let the lenders off the hook’.  Consumers should ‘use our free tool to take the first step in reclaiming what’s rightfully yours’. She added: ‘While it’s disappointing that the ruling has significantly narrowed the circumstances under which redress applies, it’s welcome the Supreme Court has recognised some consumers deserve compensation. Billions of pounds are still owed to consumers who had their interest rates unfairly hiked or faced the most excessive charges.’

Susannah Marsh, partner in financial services litigation at Moore Barlow said: ‘This decision prevents what could have been the biggest consumer compensation crisis in UK history after PPI. As the threat of billions in industry-wide payouts has been lifted, the financial services sector may breathe a sigh of relief, however this doesn’t put a pin in the issue entirely. While the Supreme Court ruling might prevent mass litigation, there may still be litigation to come. Ultimately, we’re not out of the woods yet.

‘For claims management companies, this ruling will force them to change their strategy. The separate discretionary commission arrangements (DCA) claims - affecting 40% of deals where dealers secretly hiked interest rates - will still proceed through the FCA’s regulatory route. The regulator remains committed to its redress scheme, potentially including automatic payouts for affected customers.’

Describing the judgment as a ‘complete victory for car dealers and a significant win for lenders’, Tom Hanson, regulatory disputes partner at Dentons, said: ‘The scope of lender liabilities under the consumer credit act will require some analysis’ which would be a ‘likely’ area of focus for any FCA redress scheme.

Parham Kouchikali, financial services disputes partner at Taylor Wessing, said the judgment provided ‘much needed clarity and certainty on when fiduciary duties arise’ meaning ‘the main legal ground for claims against lenders and dealers has fallen away’.

 

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