Car Finance Compensation Special

Martin gives his reaction to the Supreme Court's ruling on car finance agreements. He explains why the scope for compensation has been reduced, who might still be eligible, and why it's important that potential claimants do nothing...for now.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

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• 1:49Martin Lewis?

  Hello and welcome to the Martin Lewis podcast. I do wonder what that's going to be about. Now, this is a special extra emergency edition of the podcast as we have just had the Supreme Court ruling on car finance reselling. I know many of you want to know exactly what's going on, and so hopefully this will explain it. Now, I should say the mainstay of this is an interview I did on Five Live Drive, not long after we had the announcement. But because they'd already been talking to other people beforehand, there's a few things I didn't explain. So let me explain those now before you get into it. The first thing to understand is there were two different types of car finance mis-selling cases. The first one, the one that I've been talking about, we've talked about

• 2:32Martin Lewis?

  on the podcast and have had three million template letter complaints go through my website, is discretionary commission arrangements. Now, that wasn't being talked about at the Supreme Court. That wasn't what the Supreme Court was looking at, but it was still on hold awaiting the Supreme Court decision. Now discretionary commission arrangement is when you went to a car dealer or broker and they could increase the amount of interest that you paid in order to get more commission for themselves without telling you. You can see the obvious unfairness there. Now, what we were waiting to see from the Supreme Court is whether there was anything in there that would stop the regulator's likely plans to organise a redress scheme on

• 3:14Martin Lewis?

  mis-selling for discretionary commission arrangements. And there wasn't anything. So it is very likely that it will go ahead and launch a consultation probably very quickly. You'll hear more about that in the interview. What the Supreme Court was actually discussing were three different elements of, we'll call it, commission disclosure. Was the commission appropriately disclosed to you? The first element was actually saying that if the commission wasn't disclosed to you, because the car dealer or broker had a duty to act fairly and independently towards you, it was effectively being bribed and it was bribery and therefore the arrangement was invalid. The Court of Appeal said that was correct. The Supreme Court has struck

• 3:58Martin Lewis?

  down the Court of Appeal's view and said that is incorrect. So that doesn't count. The second one was very similar. That one was saying that car dealers and brokers have a fiduciary responsibility towards you, i.e. they need to act independently towards you. Again, Court of Appeal said yes. Supreme Court struck it down, saying no, that is incorrect in law. It is very obvious they are acting where they have a commercial interest towards the lender. The third case, the Supreme Court upheld.

• 4:28Martin Lewis?

  The Court of Appeals view over what I'm going to call excessive commissions. Now, it says this is a case by case basis rather than systemic, but in a number of different factors in combination could mean someone was unfairly treated under the Consumer Credit Act. In the particular example it gave was where there was somebody where the commission was excessive, 55% of the cost of the finance. And in the documentation, it seemed to indicate that there was a panel of lenders rather than it was mainly working with just one car finance firm, one financial services firm, and therefore it wasn't fully transparent about who it was working with. And those two things together, the excessive nature and the lack of transparency, mean

• 5:09Martin Lewis?

  that it was unfair and therefore the cost of the finance, not the amount you borrowed, the cost of the finance would be refunded. So that gets you up to speed on the discretionary commission arrangements that wasn't in the case but was on hold in the case and what the Supreme Court was discussing. Now let's zip you across to Five Live. Chris Warburton was speaking to me on Drive.

• 5:45Speaker 00

  What are you thinking? Are you surprised at this or not?

• 5:48Martin Lewis?

  No.

• 5:49Speaker 00

  Right.

• 5:50Martin Lewis?

  Not particularly surprised. We were all surprised by the Court of Appeal judgment that seemed to go against what most people thought the Supreme Court mostly overturning. That was what was expected. And what it does is it takes us back to where we were in January 2024, when the regulator, the FCA, announced it would be investigating discretionary commission arrangements. Now, it's probably telling, because I campaigned on these things, that I have been campaigning quite hard for people to get in free template letters on discretionary commission arrangements. That's where when you go to a broker or dealer for PCP or HP before January 2021, your interest rate could have been increased in order that they got more commission than you were told.

• 6:33Martin Lewis?

  And we had 3 million template letters on that. If you were to read my guide on the cases in the Supreme Court... It said that we are only doing template letters with reservation because we have real concerns that if the Supreme Court were up to uphold all cases, it could actually be in the round negative for consumers because it could destroy some consumer lending, it could mean firms go bust and they're not protected by the Financial Services Compensation Scheme. So if firms do go bust, then people wouldn't get their money back. So what we now have and what most, what people really need to understand is who's going to get money where and when and how.

• 7:08Speaker 00

  Yeah, yeah.

• 7:08Martin Lewis?

  Okay.

• 7:09Speaker 00

  Yeah.

• 7:09Martin Lewis?

  So if you had a discretionary commission arrangement, which the only way to know it because it was hidden, is to apply and ask if you had one, which is what the template letters that we did as part of that have gone through, then I think it is very likely the regulator will put out a consultation on a redress scheme and it's going to tell us whether it's doing that by Monday morning. I would be gossiped if it didn't. And it said it wasn't. And I think that redress scheme could quite plausibly be an automatic payout scheme. In other words, you will not need to ask to get your money back. Firms will be required to investigate who they did this with and give people the right, what is deemed to be the appropriate level of compensation back automatically. Now, what's

• 7:52Martin Lewis?

  very important for people to understand about that is that means you should not be doing anything right now. You should sit on your hands. You especially should not be signing up to a claims firm. If you sign up to a claims firm and there's a potential that you're going to get automatic redress, you could find that you get the automatic redress, but the claims firm wants a cut of it, even if it hasn't done anything.

• 8:16Speaker 00

  Hmm.

• 8:16Martin Lewis?

  The second type of payout, remembering that you will have discussed it, there were three cases at the Supreme Court.

• 8:22Speaker 00

  Yeah.

• 8:23Martin Lewis?

  The first two were sort of the technical ones that said car dealers and brokers should have been independent and should have declared the commission and acted as an independent agent on your side and impartial. And effectively, the Supreme Court said, no, that isn't correct. That commercial entities working with car finance firms. And now, what, what, all that, under the bribery law and under the fiduciary responsibility law, those two cases, what they meant effectively was, if they didn't tell you what the commission was, the whole deal was invalid. And that was why people were freaking out about this, because, you know, Rachel Reeves was talking about intervention, which I don't think will now happen, because that's come down, because that potentially undermined the whole way

• 9:06Martin Lewis?

  that the regulator had said consumer credit should work in this country. Supreme Court has gone, no, that isn't happening. But what it did uphold was the third case, and actually, that was a case of fairness. So what it said is there are a number of different elements that could lead to someone being treated unfairly. And it pulled, the case it pulled out, the, the two main elements were, first of all, the commission was excessive, 55% of the cost of the finance was paid in commission, that was deemed excessive. And that, combined with the fact that the car broker's material had indicated that it was operating off of a panel of lender, lenders, but the Supreme Court didn't really feel that it was operating

• 9:48Martin Lewis?

  off a panel, it was working with one lender. Now, I need to put some caveats, that's only from listening to the Supreme Court, I haven't read the data, so I may be slightly wrong on that with the individual firm, but that was the premise in general. Those two things in combination, excess commission and unclear, unclear marketing documents, they said meant it was unfair and someone should get all their money back. So I would hope we will also see, sorry, all the interest and commission back. I hope we will also see the regulator in consultation, which I'm hoping will come, include what I'm now going to call excessive commission cases as well. But they are far fewer than, than the round. Where we were looking at, the Supreme Court upheld, everything was 99% of car finance deals being owed money.

• 10:29Martin Lewis?

  You're now looking at the 40% of deals that had discretionary commission arrangements, and an unknown amount, but probably 5 to 10% that had excessive commission. And that means the payout level is probably down to 5 to 15 billion pounds from the 44 billion pounds. But the most important message people listening about what it means for them is do nothing, do nothing, let's wait and see what consultations.

• 10:50Speaker 00

  Okay, so they're the overall amounts, but when you're talking about numbers of claimants, just to be clear, how many people could we potentially be talking about there? And, and do we know what a typical payment could look like, Martin?

• 11:04Martin Lewis?

  So let me first answer that technically, the answer is no and no. Now, if you give me the fair caveat that I am allowed to guess.

• 11:13Speaker 00

  Yes, go ahead.

• 11:14Martin Lewis?

  Based on knowledge and no one's going to hold me to it.

• 11:16Speaker 00

  No.

• 11:17Martin Lewis?

  Well, certainly, we had three million discretionary commission arrangement cases. Complaint forms go for us, of course, minus three, no, there's no link up, it's just a pro forma that we worked here on at all. And on our data about, well, forty percent of all cases with DCA is actually, we found sixty percent of people did have a discretionary commission arrangement. And there's clearly millions of more people who could be affected. So we're certainly talking in the, I think, probably single digit millions numbers of people. I know that's very broad, but just to give you the scale. As for the payouts, well, under the way the ombudsman, the financial ombudsman looked at payout on discretionary commission arrangements, what they said is it would be the difference between the extra interest you were charged and the minimum interest you could have been charged.

• 12:02Martin Lewis?

  And that on average was eleven hundred pounds, but we don't know that the regulator will look in the same way as the ombudsman. I think it could be smaller. I probably think pure plucking it out of nowhere could be half that amount because of the way they will sort it through. And what we also now know because of something that was said in the Supreme Court is they won't be doing it based on the current way it works with the ombudsman, where you get eight percent statutory interest a year for every year that you were owed this money. I think they'll be doing it more on commercial rates of interest. So the payouts will probably be a bit smaller than was originally thought. But they will still, for many people who had discretionary commission arrangements, my guess is will be in the hundreds of pounds.

• 12:42Speaker 00

  Okay. Can I just ask you, I mean, just in respect of a text we have from Alan in Dorset, which I'll put to you around the whole issue of, you know, car dealers, whether they should be acting in the interests of the car buyer or not. And that's what the Supreme Court was looking like, looking at obviously and making a ruling on. And in fact, the court ruled, as you've said, that the dealer did not have any obligation of single minded or selfless loyalty to the customer and had not suggested to the customer in each case that it was putting its own interests aside. Now, Alan in Dorset says, consumers unaware of commission arrangements, because we were getting into this earlier on and just saying like, you know. I put the idea forward that I think most people, I thought most people would assume

• 13:25Speaker 00

  that car dealers would have some kind of commission arrangement, but a guest who was from one of the consumer groups said, no, no, we've done the research and found that's not actually the case at all. So it shows what I know. But Alan says consumers unaware of commission arrangements, thinking car dealers were on their side, says a lot for financial education in this country, concludes Alan, as I'm sure Martin Lewis will say when he's on. I don't know what your conclusion, whether you think that's a bit of an unfair conclusion reached by Alan or not.

• 13:53Martin Lewis?

  Well, I think what, I don't think it's unfair. I think the lack of financial education in the UK is paramount. It's the reason why I campaigned to get it on the national curriculum in 2014, a period victory because we went to free schools and academies which don't have to follow the national curriculum. It's the reason why I met with the person doing the curriculum review recently and said we need to shift it to be in the compulsory part of the curriculum. It's the reason why I funded free textbooks for every school that people can download off the Young Money charity website, but a curriculum maps textbooks and financial education. So absolutely, financial literacy and capability is a big problem here. I think what the difficulty you get in this is we have a real differentiation. We have this right across finance, we have it across complaining, on people who tend

• 14:35Martin Lewis?

  to be professional, work in office jobs and used to doing forms and researching things for themselves and filling out complaints and the way those things work, and people who don't, and people who maybe have onset dementia or mental health and capacity problems that makes these things more difficult, and they're unable to do the research or have them in anxiety, and people who are overly trusting and they're old, or people are sleep deprived because they've got young children, and all of those things, which means consumers can be vulnerable at times.

• 15:05Speaker 00

  Yeah.

• 15:05Martin Lewis?

  So I think that's the balance that goes on. And in fact, in the Supreme Court judgment over the unfairness, one of their criteria that could make it more unfair would be the nature of the consumer. So I think me going in, and I'm going to use me as an example, because I think it's fair to assume I'm an educated consumer.

• 15:23Speaker 00

  I think they would dread that, to be honest, but yeah.

• 15:25Martin Lewis?

  Yeah. So I think if I went in and didn't bother to read the documentation and therefore misunderstood what was going on, I would have a really tough time to claim that I'd been unfairly treated. But I think many people don't have that, and certainly many vulnerable people don't have that, and that is the balance here.

• 15:46Martin Lewis?

  I think that, you know, and if I'm really honest, while Rachel Reeves will today, when this judgment came out, her response will be.

• 15:56Speaker 00

  Yeah, yeah, yeah.

• 15:57Martin Lewis?

  Because the knock-on effects on the economy and on competitiveness and investment in the UK were big. I think there'll cut some consumers who will go, a word that you probably can't say on there on five at this time. I, I think this, we're probably somewhere in between the two, if I'm honest. I think so. First two parts of the Supreme Court, well, it meant payouts for people. It was effectively a technicality that claims firms were looking at to try and get people money rather than overt unfairness. And we're now in the position where if you've been unfairly treated because you were charged more interest than you should have been without being told, or they had excessive commission and you thought you were dealing with someone whose documentation said they were independent, they weren't, you will get some money back. But if you did everything that you know you

• 16:39Martin Lewis?

  were doing and it wasn't excessive and you were just going to get it back on the, on the technicality, you won't. And I think, and I haven't read all the documents yet. I've been doing media referencing since the announcement came out. So I haven't. But I think that we're probably, you know, within 20% of the way of the right balance.

• 16:57Martin Lewis?

  That's it from me. I hope this helped you understand somewhat what was going on in car finance, misselling. I am now taking a work break for the summer, but we'll be putting out special best of pods while I'm away, that you'll be able to listen to with some of the things that we've talked about throughout the year that still haven't dated yet. Take care. Bye bye.

• 17:18Speaker 05

  Martin Lewis is the founder of MoneySavingExpert.com. But of course, other consumer and price comparison websites are available. You can get in touch with Martin's podcast production team by emailing [email protected]. The offers and rates mentioned in the podcast are correct at the time of recording. However, if you are listening on demand, it's worth double checking as details can date. Remember to subscribe on BBC Sounds and leave us a review however you listen.

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• 18:44Speaker 06

  And whether you're debugging code at midnight, building a financial model, or strategizing your next business move, Claude extends your thinking to tackle the problems that matter. For problems worth solving, get started with Claude at claude.ai/solve. That's claude.ai/solve. And check out Claude Pro, which includes access to all of the features mentioned in today's episode. claude.ai/solve.

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