Adam Goldsmith
Live reporter

Image source, Getty Images

The UK Supreme Court has today ruled that lenders won’t have to pay compensation to millions of motorists over car finance loans.

In a nutshell, today’s case focused on whether or not car dealers had a duty to act in the interests of car buyers when selling a car on finance.

Reversing the decision of the Court of Appeal, Dearbail Jordan describes how the judges ruled on matters of fairness when car dealers receive commission from lenders.

One case study claimant was successful; Marcus Johnson tells BBC Wales that while he's pleased for himself, he is worried for others.

That's because, as our business correspondent writes, today’s ruling is now likely to reduce the scope for very large scale claims for compensation from millions of motorists.

There will still be some compensation awarded to car buyers - the Financial Conduct Authority says it is now deciding quickly on a potential redress scheme before Monday morning.

For now, if you think that you may be entitled to compensation, Money Saving Expert Martin Lewis has one piece of advice: “Do nothing” until a scheme is set up.

We’re ending our live coverage here for now, but our newsstory has all the details of what today’s Supreme Court judgement means for motorists.

Catriona Aitken
BBC Radio Wales

Marcus Johnson from Cwmbran in south Wales – the only successful motorist across the three cases – says he’s pleased for himself, but worried for others.

Reacting to the Supreme Court ruling, he says he’s “not sure about the message this sends” and urges people to “ask all the questions… before you enter into anything” regarding car finance.

He fears other drivers like him could be “unaware of what options were available” and not realise “something wasn’t quite right” until much later.

“When I left with the car, I was just told I'll be paying this monthly payment for this many months. And I just thought ‘great’,” he tells BBC Radio Wales Drive.

He says his successful compensation claim was “a massive win for me and my family.”

“It meant that I could spoil my wife and my child for Christmas for once but, again, it's a bit of a pinch of salt for everybody else involved.”

"Do nothing."

Speaking to our colleagues on Radio 5Live, Martin Lewis says that people should sit tight while the regulator consults on what shape a potential redress scheme might take.

Lewis says we will know whether it plans to enact such a scheme on Monday, saying he would be "gobsmacked if it didn't".

And Lewis estimates that this scheme could possibly involve automatic pay outs, meaning claimants would not need to do anything to receive the money they are owed.

So, if you think you might be entitled to compensation, Lewis says you "should sit on your hands".

This means you "especially should not be signing up to a claims firm", he adds, explaining that these firms might still try to take a cut of any claims even if an automatic pay out system is used.

As for how much money might now be on offer, Lewis suggests that today's ruling could have possibly seen 99% of car finance deals generating claims.

Now, though, he estimates the payout level is "down to £5bn to £15bn from the £44bn" that had been anticipated after the Court of Appeal ruling.

Dearbail Jordan
Senior business and economics reporter

We have finally heard from the Financial Conduct Authority (FCA).

This is important because the FCA will decide whether to set up a redress scheme for consumers who signed car finance agreements where dealers secured big commissions from banks in exchange for getting customers to agree to pay high interest rates.

"We welcome that the Supreme Court has clarified the law," an FCA spokesperson says.

They add: "We will confirm whether we will consult on a redress scheme before markets open on Monday 4 August." This happens at 08:00 BST.

"Our aims remain to ensure that consumers are fairly compensated and that the motor finance market works well, given around two million people rely on it every year to buy a car," the statement continues.

The FCA also says that if they do propose a redress scheme it will consult "widely", which will likely mean speaking to consumers, car dealers and the firms that provided the finance.

Dearbail Jordan
Senior business and economics reporter

Car finance lenders aren't completely off the hook.

It is looking like customers who signed car finance agreements containing a "discretionary commission arrangement" (DCA) could be in line for compensation following the Supreme Court judgment.

A DCA is where a car dealer earned a commission from the bank or lender depending on how much interest the dealer got customers to sign up to in their car finance agreement.

The higher the interest rate customers agreed to, the higher the commission the dealer got. The Financial Conduct Authority banned DCAs in early 2021.

So, while today's judgment means motor finance firms won't have to pay out an estimated £30bn in redress, analysts estimate that compensation could still reach into the billions of pounds.

Richard Coates, head of automotive at law firm Freeths, said: "The judgment opens the gateway for consumers to bring claims under the Consumer Credit Act, where particularly large commissions have been paid and the relationship is therefore unfair."

Dominic Casciani
Home and legal correspondent

Sales forecourts have changed from the bad old days of dodgy dealer Arthur Daley (apologies to Millennials who may never have heard of one of TV’s most loveable rogues).

But the fundamental point in today’s judgment reflects a basic truth in his character: a car dealer is pursuing their own commercial interest.

And that is where the Supreme Court said the Court of Appeal got stuck in a rather large legal pothole. The lower court had concluded that a dealership offering financing had a deep personal duty to a customer.

In law, this is called a fiduciary duty. It generally refers to someone who has responsibility for looking after someone’s property or affairs and the duty of loyalty that comes with that.

An example is a firm’s board member: They must act for the company, not themselves.

But, the Supreme Court found, this duty doesn’t suddenly organically spring up between a car dealer and a customer just because they have agreed a good price for a car. Dealers know they will only get the car sold if the customer has the finance in place too.

They had a personal and commercial interest in getting the customer to secure finance - and then sign - and there was nothing legally improper about that.

Courmacs Legal, which says it is dealing with over four million claims relating to motor finance mis-selling and allegations associated with civil bribery and hidden commissions, has reacted to this afternoon's judgement.

Managing director Darren Smith says the court “has ruled on the position in relation to certain types of commission arrangements.

"It has not ruled on the position where a discretionary element was applied to the commission. It is even more important now that lenders make clear to customers the nature of their agreements, and if they were discretionary."

He adds there will still be "many" who will be entitled to redress as he called on the government, regulators and lenders to allow the judicial process to be completed."

As we reported earlier, a ruling with regards to so-called discretionary commission agreements is yet to be made.

We've just been hearing from the lawyer for the two claimants who lost their cases with the Supreme Court today.

Kavon Hussein represents Andrew Wrench and Amy Hopcraft, and tells the BBC that he is "disappointed, especially for my clients".

Speaking outside the court immediately after the verdict, he says the decision is "perhaps not the best outcome for consumers in general".

As we've been reporting, the court ruled that one claimant, Marcus Johnson, was entitled to compensation, but Hussein says this ruling is unlikely to stretch much further to other car buyers.

"Where it’s a small commission you’re not going to be able to claim it back," he explains.

Dearbail Jordan
Senior business and economics reporter

There were three cases at the heart of the Supreme Court case, but only one of these has been upheld - that of Marcus Johnson.

It appears that in his case, the test of unfairness was reached because the South African lender FirstRand - which provides car finance in the UK under the name MotoNovo - paid a significant commission to the car dealer and it wasn't disclosed to Johnson.

The documents provided to Johnson did not disclose details of commercial ties between FirstRand and the car dealer.

The Supreme Court points out that Johnson failed to read any of the documents. However, the judges say that he is "commercially unsophisticated”, and it is questionable to what extent a lender could expect such as customer to understand these details.

What we're trying to find out now is does Johnson's case being upheld pave the way for others to claim compensation?

Theo Leggett
Business correspondent

The Supreme Court has sided with finance companies in two out of three crucial test cases focusing on commission payments made by banks and other credit providers to car dealers.

These cases focused on whether or not the car dealers had a duty to act in the interests of the car buyers when selling a car on finance.

It looked at whether it was necessary for the buyer to give their informed consent to commission payments, and whether a secret commission amounted to a bribe.

The court ruled that the dealer did not have any obligation of single-minded or selfless loyalty to the customer and had not suggested to the customer in each case that it was putting its own interests aside.

It therefore reversed an earlier ruling by the Court of Appeal.

The Supreme Court did uphold the car buyer’s claim in one case, in which it considered that the relationship with the buyer and the finance company was unfair because of the sheer size of the commission, and because a false impression had been created that the dealer was offering products from a select panel of lenders and choosing the most appropriate one.

The ruling is likely to reduce the scope for very large-scale claims for compensation from millions of motorists.

However, a question remains over what will happen regarding so-called discretionary commission agreements, in which the dealer was paid more by the lender if they pushed a loan with a higher interest rate.

Such arrangements were banned by the Financial Conduct Authority in 2021 – and it is still considering its next steps.

The Supreme Court has published its ruling online., external

It is over 110 pages long and full of legal jargon - so we are carefully combing through the details of the judgement trying to work out what it all means for you.

We have a team of business experts, journalists and correspondents who are also poring over the details and making sense of it all.

Stay with us and we will bring you the latest.

Helen Catt
Political correspondent

This ruling has avoided the Treasury's nightmare scenario.

The Supreme Court has not supported the two parts of the Appeal Court's judgement that it and the industry was most worried about, and which could have had far-reaching implications.

While banks are still likely to be on the hook for those who had discretionary commission arrangements (DCAs), and potentially, on a case-by-case basis, for those charged very high commissions, the amount will be much lower.

That reduces pressure on the Treasury to take any action and removes what it had worried could be a major threat to its plans to grow the economy.

Some reaction to bring you from the government after the Supreme Court ruled lenders are not liable for hidden commission payments in car finance schemes - meaning they have avoided potentially having to pay compensation to millions of drivers.

"We respect this judgment from the Supreme Court and we will now work with regulators and industry to understand the impact for both firms and consumers," a Treasury spokesperson says.

It adds: “We recognise the issues this court case has highlighted. That is why we are already taking forward significant changes to the Financial Ombudsman Service and the Consumer Credit Act.

"These reforms will deliver a more consistent and predictable regulatory environment for businesses and consumers, while ensuring that products are sold to customers fairly and clearly."

Delivering the Supreme Court's ruling, Lord Reed says the court allows appeals brought by the finance companies.

But, Lord Reed says the court upholds Mr Johnson's claim "that the relationship between him and the finance company was unfair".

"We award him the amount of commission plus interest," Lord Reed says before adding that "other customers claims are rejected".

We are going through the judgement now and will explain what it means for you shortly. Stay where you are.

Image source, Supreme Court

Lord Reed now explains that in today's proceedings, three customers are seeking to recover the amounts of commission paid to the dealers by the finance companies.

He adds that the claims have been put forward on three grounds - including an argument that the finance companies bribed the dealers by paying them commission.

The decision of the Court of Appeal came as a "shock" to the car finance industry, Lord Reed continues, as it "conflicted" with assumptions made by the industry and by the FCA.

It led to the finance companies appealing to the Supreme Court.

He adds that the Treasury's attempts to intervene were refused as their arguments concerned "economic consequences".

The Supreme Court is only concerned with the "legal issues", Lord Reeds says.

Lord Reed explains that the court is today deciding on three cases which involve customers buying cars from dealers on finance through monthly payments.

He continues to talk through the details of the case and explains what exactly motor finance is - we've set that information out a little earlier on.

The Supreme Court judge says that in order to understand the court's decision, it's necessary to understand that the dealer has a commercial interest from start to finish.

This is because the car dealer's commercial interest in the successful conclusion of the agreement between the customer and the lender can affect its behaviour.

As one example, Lord Reed explains that if the lender is unwilling to lend the customer enough money to afford the car, the dealer may offer the customer a personal loan to bridge the gap so that it can secure a sale.

Supreme Court President Lord Reed starts by explaining why the court is passing its ruling at 16:35 BST on a Friday afternoon.

This has been advised by the Financial Conduct Authority that the outcome may “affect the price of securities in the car price market," Lord Reed says.

He adds: "The markets will need time to digest and consider its implications.”

Image source, Supreme Court

We're just about ready to hear from the Supreme Court - the justices are expected to give their ruling at 16:35 BST.

You can watch live as the court gives its judgement, and we'll distil what it all means - including whether anyone is entitled to make a claim on their car financing - as we hear more.

Rachel Clun
Business reporter

The Supreme Court ruling coming a little later could pave the way for millions of people to claim compensation over the mis-selling of car finance.

The decision will be whether or not to uphold a previous court ruling, which found that it was unlawful for car dealers to receive hidden commission from lenders when they sign customers up for motor finance.

More than two million new or second-hand vehicles are bought using finance each year, according to the Financial Conduct Authority, so the decision could have an enormous impact on the car industry and on motorists.

Rachel Clun
Business reporter

The financial watchdog has warned motorists they face losing up to 30% of any compensation they receive for motor finance if they sign up with a claims management company (CMC) or law firm.

If the Supreme Court upholds all, or part of, the Court of Appeal’s decision, the Financial Conduct Authority (FCA) will consult on setting up a central compensation scheme.

How much compensation people will be entitled to is yet to be determined, but already, the FCA’s executive director Sheree Howard says some law firms and CMSs are advertising “highly speculative figures”.

“Consumers should be aware that by signing up now with a CMC or law firm, they may end up paying for a service they do not need and losing up to 30% of any money they may receive,” she says.