Marcus Johnson, a resident of Cwmbran, Torfaen, bought his first car on finance without realizing that a dealer received £1,650 in commission, a quarter of the total amount he borrowed. He expressed surprise at the revelation, stating that he was unaware of the existence of commission in the industry at the time of his purchase of a blue Suzuki Swift in 2017. His case, along with two others, led to a ruling by the Court of Appeal that deemed it illegal for lenders to pay commission to dealers without the informed consent of buyers.
The car finance sector in the UK, second only to mortgage lending, has come under scrutiny following a Court of Appeal judgement last year that overturned hidden commission payments to dealers as unlawful. Many new and used cars in the country are purchased through finance agreements, where customers put down a deposit and borrow the rest as a loan to drive off in their new vehicle. The Financial Conduct Authority (FCA) has been flooded with complaints following this ruling, urging those who feel they were victims of mis-selling to make a claim.
Despite a possible appeal by car finance providers, lenders may still face substantial compensation costs due to the banning of discretionary commission arrangements (DCAs) by the FCA. This ban, implemented in 2021, aimed to eliminate incentives for buyers to be charged higher interest rates unnecessarily. Consumer Voice co-founder Alex Neill expressed the potential magnitude of compensation payments if all “secret” commission payments were deemed unlawful by the Supreme Court, likening it to the scale of the PPI scandal with payments amounting to billions of pounds
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