The Supreme Court has blocked chancellor Rachel Reeves from intervening in the landmark car finance case that is thought to have affected millions of buyers.
The case is set to be heard by the UK's highest court in April and is centred around non-discretionary lender-paid dealer commissions that were tacked on to car finance deals without the knowledge of buyers.
In some instances, it has been judged that salespeople acting as brokers were incentivised to charge higher interest rates so they could bank an increased commission.
The Supreme Court is hearing the case after the Court of Appeal ruled compensation should be paid by lenders where buyers were not informed about the commission.
The government last month said that while it wanted customers to get any compensation they were owed, the size of any redress bill was concerning, especially as it could heavily impact UK banks.
However, the chancellor’s attempt to intervene in the case has been blocked by the court.
A spokesperson for the Treasury told the BBC: "We respect the court's decision to not grant our application to intervene... and will monitor it closely".
WHAT HAS HAPPENED?
The ruling by the Court of Appeal was announced as part of a case brought against Close Brothers and Firstrand Bank by three customers who claimed they were mis-sold finance deals. The trio had previously had their cases thrown out by lower courts.
Judges unanimously ruled to uphold their appeals, stating that “a broker could not lawfully receive a commission from a lender without obtaining the customer’s fully informed consent to the payment”.
This effectively bans dealers from profiting on finance deals unless the buyer gives their consent. The decision threw banks and dealers into a state of disarray and the situation has been called the biggest finance scandal since PPI in the middle of the last decade
The case is now being heard by the Supreme Court after lenders appealed the decision.
WHAT DOES IT MEAN?
The ruling effectively threatens the long-established agreement that dealers receive commissions from banks or lenders for acting as a middleman in selling finance agreements on vehicles.
Since the ruling, many car makers have already begun to disclose commission rates to customers in order to continue business as normal.
Among those gearing up for the worst is Lloyds Bank, as the owner of Black Horse, a leading lender of car finance. In February, it revealed it had set aside £450 million to cover legal expenses and compensation payouts.
Join the debate
Add your comment
I just don't understand any of this, unless of course you're a lawyer or ambulance chaser, both who'll do very well out of these claims.
1. You go to a dealership to buy a car on finance, they say it'll cost you £400 a month and you agree. What does it matter where the money goes to if you're happy to pay £400 a month?
2. Competition. I was under the impression competition was supposed to lower prices? So if one dealer wishes to take less of a commission then shop around and you'll find the same car for £390 a month. Is that not how it's supposed to work?
3. If a dealer needs to make £1000, and they do so at present via cashback from a finance company, if you don't agree to their cut under the new rules, isn;t the dealer just going to put £1000 on to the price of the car?
As I say, unless you're in the legal business or the 'no win no fee' game, who else stands to benefit from this? It's certainly not the buyer.
It's no different from the stupid ruling on insurance companies no longer able to offer incentives for new customers. Who benefits from that, because to maintain their profits, it just means new customers now have to pay more, it doesn't mean existing customers will see their policies reduced in price.
Sometimes I think there is too much consumer protection in this country. So when someone buys a car on finance, it should be up to them to either agree to the terms or not. If the dealer is getting a back-hander from the loan company, or adjusting the terms of the loan in its favour, then the customer has a right to reject the terms and go elsewhere.
As someone with an elderly relative who was pressurised into a very expensive finance agreement that was significantly above market rate, I hope a day of reckoning is coming for the companies involved.
Crocodile tears are flowing at the thought of car salesmen struggling to meet their monthly targets now. Boo hoo.
And how will this ruling benefit that elderly relative next time they go to buy a car? Dealership just increases the price of the car to compensate for their loss in commission. It's not rocket science.
Define market rate exactly? Not everyone gets the same rate from a bank.
The system is so flexible its laughable. The banks (lenders) will just amend the criteria in the background to increase the rate for everyone concerned.
The retail business is starting to get very American in the way it operates. Next dealers will have to declare the profit they make on the product like US dealers do.