Drivers ‘could claim billions’ after car finance fee refund decision

The drivers won a landmark legal decision against companies that offer car financing offers.
Court of Appeal judges ruled in favor of three car buyers who claimed hidden fees on their transactions added thousands of pounds to the cost.

“Consumers have been very badly served by both brokers and lenders,” the judges said.

They said consumers have a right to know about the fee arrangements between the lender and the car dealer to ensure fairness.

Until a rule change in 2021hidden fees on car-buying offers meant customers could end up paying many thousands of pounds more for a loan to buy the vehicle.

The four judges held that car dealers had a legal duty to act in the interests of consumers and not in their own interests when arranging car finance deals.

They said it was not enough that the details of the commissions were hidden in the terms and conditions of the contract. The ruling could open the door for many more consumers to seek compensation.

Lawyers for the clients who brought the case – student assistant Amy Hopcraft, factory supervisor Marcus Johnson and postal worker Andrew Wrench – argued that the dealers owed them a duty to provide impartial information or advice.

They demanded the return of the hidden commission paid to the dealers as credit brokers.

The court agreed that the car dealers were the sellers, but they also acted as credit brokers on behalf of the buyers. As such, they had a duty to seek and offer a financing deal that was competitive and suited to customer needs.

In 2021, the Financial Conduct Authority (FCA) banned agreements under which firms could receive commissions linked to the interest rate paid by customers, saying the practice encouraged car dealers to increase a customer’s borrowing costs.

Thousands of drivers have complained about being overcharged. The firms rejected many of the complaints, arguing that they had not acted unfairly or caused loss to their customers.

The Financial Ombudsman Service considered some complaints dismissed by the firms and found in favor of the plaintiffs in two decisions. Complaints were also filed by some consumers at the County Courts, some of which were admitted,

The FCA reviewed the landmark cases since January. It warned creditors to brace for additional costs as part of a possible compensation scheme.

It is conducting its own investigation into the car finance sector and looks likely to make lenders pay fees.

The watchdog has been inundated with complaints from consumers who claim their loans have been assessed incorrectly. Over a million applications have been submitted through Martin Lewis’ money saving expert site.

The FCA has said it has cut the time firms have to provide a final response to customers about car finance complaints involving a discretionary commission agreement (DCA). “We have done this to prevent messy, inconsistent and ineffective outcomes for consumers and knock-on effects on firms and the market while we look at whether car finance customers have been overcharged due to past use of DCA.

He said he had taken note of the Court of Appeal’s decision and was considering the decision carefully,

Separately, law firms are taking action on behalf of some drivers. Manchester-based Consumer Rights Solicitors, which acted in the case, believes the compensation bill could reach £42 billion.

Shares in Close Brothers, the company that provided the financing, fell sharply after the verdict.
The company said: “The financial impact of the Hopcraft case in isolation is not significant,” but warned that “the judgment may set a precedent for similar claims, which could … result in significant liabilities for the group.”

He disagreed with the court’s decision and will appeal to the Supreme Court. It said it was suspending new UK car finance business while it reviewed its processes.

Kavon Hussain, of Consumer Rights Solicitors, said: “These hidden fees meant that the consumer could pay anything from a few hundred pounds to many thousands more to a creditor in interest payments, for the latter to then pay the dealer of the It was and still is a broken system.”