Drivers could receive billions in compensation as car finance ruling may be 'bigger than the PPI scandal'

The Court ruled that it was unlawful for lenders to have paid a commission to car dealers without the borrowers' knowledge, prompting calls for sector-wide changes.

FirstRand Bank and Close Brothers Motor Finance confirmed that it would appeal the ruling with the UK Supreme Court, while Lloyds, through its Black Horse division, said it was assessing the potential impact.

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Some experts have suggested that consumers could even see their car loan written off or rescinded, according to reports from The Guardian.

Stuart Masson, from The Car Expert, spoke about the ruling passed last week and the impact it could have on motorists who have used car finance in recent years.

He said: "This ruling [from the UK Court of Appeal] marks a significant precedent that extends far beyond car finance.

"It has reinforced and proven that lenders and brokers have a duty of care to their customers and must ensure absolute clarity in all information provided.

"Aligned with the FCA's 'treating customers fairly' principle, the ruling highlights a failure to meet these standards."

Masson noted that the decision was a "positive step" for drivers, matters must go further by drafting finance contracts in simple English, rather than complex, legal jargon.

He continued, saying: "However, the ruling may invite a wave of claims across diverse lending categories, potentially leading to substantial costs for lenders that could ultimately be passed on to customers.

"We don’t expect this to be a short story – this is going to go on for years – it might even be bigger than the Payment Protection Insurance (PPI) scandal."

It has also been suggested that Friday's decision could influence the Financial Conduct Authority's (FCA) investigation into discretionary commission arrangements.

Prior to 2021, lenders allowed brokers to adjust interest rates offered to customers when applying for car finance. For higher interest rates, the broker would receive a higher level of commission.

On January 11, 2024, the FCA said it would review motor finance contracts for customers who had been overcharged and warned that lenders should set aside money for potential payouts.

Last month, the FCA announced that the investigation would continue until May 2025, when the regulator said it would announce the findings and next steps of its work.

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Money saving expert Martin Lewis has also highlighted how hundreds of thousands of motorists have already complained about their car finance deals.

He also compared the issue to potentially being as big as the PPI scandal, which, according to the FCA, saw more than £38.3billion being paid out.