UK’s top court hands down landmark ruling on billions in car finance case. This huge decision highlights the pervasive issues that exist with predatory contracts in auto sales. The court’s decision underscores that many motorists have unwittingly entered into contracts that favored brokers rather than providing them with the best financial options. This decision is particularly important given that more than 90% of all new car purchases are financed. In so doing it brings transparency to a deeply shocking feature of Britain’s £240 billion credit system.
Mr. Johnson’s case was at the heart of this judicial ruling. He challenged an undisclosed commission of £1,650, which was a quarter of the car’s full price. The court’s message was clear: it is not the judiciary’s responsibility to redefine the boundaries of consumer protection law. Rather, it demanded that public regulatory agencies act to end the harmful and pervasive practices that are characteristic of the industry.
The implications of this ruling can reach much further than just the individual parties to the case. The aim was for financial institutions to be liable for compensation claims up to £40 billion. They’re reeling from the aftermath of bad dealer-dishonest loans and kickbacks. Unfortunately, the roots of this scandal go back decades, raising serious concerns about the integrity of the car finance market.
We’ll never know how many real people harmed by these bad practices would have received meaningful compensation. The majority will receive below £950 per person. The redress scheme currently being proposed by the Financial Conduct Authority (FCA) is very good and generous indeed. It can be up to £18 billion, specifically targeted to address consumer complaints. The FCA is still at the stage of consulting on this proposal. To complicate matters, they are planning on adding loans as far back as 2007 into the reach of their compensation. The scheme will include all discretionary as well as certain non-discretionary commission structures.
Indeed, critics have been concerned that Britain’s credit system is based on perverse incentives. This leads to asymmetric information, putting consumers at risk of being exploited by brokers. The FCA’s consultation process will be tremendously important in determining how these issues will be addressed. Beyond that, it will know that consumers are treated fairly, moving forward.