Well, we have finally reached the day many lenders and motorists have been eagerly awaiting. Today, at 4:35pm, the Supreme Court announced their ruling on whether or not hidden commission payments in Car Finance agreements were lawful. And the verdict is… yes and no. The Court largely rejected claims that ALL hidden commission charges were unlawful, overruling an earlier judgement by the Court of Appeal, but did uphold a particular claim due to the level of commission charged. Furthermore, the ruling does not automatically throw out those claims related to Discretionary Commission Agreements, for which lenders are still likely to be liable. In this bulletin, we explain what this means for the industry and for motorists, but also our recruitment agency partners and their contractors.
Background Context
Today’s ruling relates to whether or not to uphold an earlier ruling from the Court of Appeal. As a reminder, back in October 2024, the Court of Appeal ruled that brokers must inform, and gain consent from, borrowers before receiving commission from lenders. This meant that ANY commissions received without the customer knowing would be deemed unlawful, and would have led to a huge number of complaints, with compensation liabilities potentially reaching over £35billion. This is because it would impact almost all car finance agreements, not just DCAs.
Consequently, Close Brothers and MotoNovo launched an appeal against this ruling, which has been heard by the Supreme Court.
What’s the Ruling?
The Supreme Court’s verdict, released today, mostly overrules that of the Court of Appeal. Their ruling, which you can read in full here, decided that no bribery or dishonest assistance occurred, and as a result lenders are not liable to pay commissions back to motorists. One case was upheld, however, on the basis that the hidden commission was so large that it constituted an unfair relationship between the lender and the claimant.
It is important to note, however, that this does not automatically mean that historic claims related to Discretionary Commission Arrangements, which we explained here, will be thrown out the window, nor that lenders are absolved of any liability. It simply means claims that hidden commission constitutes a bribe, or that consent was necessary, are invalidated. Lenders may still be required to compensate those with DCAs if they breached FCA regulations. That’s a lot to understand, we know, but we will be continuing to update this blog once we know the next steps to be taken by regulators. The FCA have already said they will announce their plans within 6 weeks of today’s ruling.
How Does This Affect Recruiters and Contractors?
In short, we just don’t know yet. Exactly what the impact on the industry will be is heavily dependant on the action the FCA will take. In any case however, we expect that lenders will still need additional resource to help administer any compensation payments they are liable for, as well as ensure such a near miss doesn’t occur again. As a result, contractors, and the recruitment agencies that place them, could still stand to benefit. Whether you’re a contractor or recruiter, get in touch with Trafalgar Umbrella today to learn how we can help you.