The FCA estimates that such a compensation scheme for mis-sold car loans would cost up to £18 billion. This effort will provide necessary protections to drivers who consider themselves victims of this growing trend. This revelation follows a recent ruling by the Supreme Court, which addressed the legality of hidden commissions on car loans. That decision reversed previous lower court decisions that ruled these commissions unconstitutional. This amendment will have a significant impact on the cash flow and bottom line for lenders and borrowers.
In the end, the U.S. Supreme Court’s unanimous judgment proved a landmark victory for Marcus Johnson. Through the campaign, he was able to challenge the commission structure linked to his car loan with FirstRand. The court found the dealer’s commission to be 55% of the overall price charged. This figure encompassed interest as well as fees. This large percentage created apprehension over the balance of the joint venture’s relationship between Johnson and FirstRand.
The Supreme Court described the commission as a “potent symbol” of a hostile environment. This incredibly bold statement further cements the need for regulatory oversight for all capital markets transactions. One immediate result of this ruling has prompted the FCA to put into place a compensation scheme. Most importantly, they seek to stop the harm being done to those who are affected by these discriminatory, unlawful practices.
If put into practice, the first payouts from this new compensation scheme would likely start pouring in next year. Few people are likely to get more than £950 in redress. This highlights both the deep, pervasive extent of the problem and its relatively small-scale impact for each individual claimant.
The FCA expressed optimism regarding the Supreme Court’s ruling, stating, “This helps us because we have been looking at what is unfair and, prior to this judgment, there were different interpretations of the law coming from different courts.”