We previously reported that a recent Court of Appeal ruling could potentially open the door to billions in compensation payouts for consumers. In this article, we’ll summarise the court’s decision, explain its implications in the context of existing car finance claims, and guide you on the next steps to take.
The ruling found that finance providers, such as Close Brothers and FirstRand Bank, failed to properly disclose the commissions paid to brokers, breaching their fiduciary duty to act in the best interests of their customers. This decision carries significant financial and legal implications for anyone who has taken out car finance without being fully informed about broker commissions. While this is a major victory for consumers, the process of claiming compensation is more complex than in previous cases, like PPI.
DCAs vs Hidden Commissions: Understanding the Legal Landscape
When it comes to car finance claims, there are two primary legal issues at play: Discretionary Commission Arrangements (DCA) and hidden commissions.
Discretionary Commission Arrangements (DCAs) were banned in 2021 by the Financial Conduct Authority (FCA), and retrospective claims can be made going back over 10 years. These arrangements allowed brokers to receive higher commissions if they charged borrowers higher interest rates, creating a clear conflict of interest. The FCA’s investigation into DCAs aims to protect consumers, and it’s estimated that each claim related to these arrangements could be worth around £1,100. In fact, the total amount owed could be comparable to the PPI scandal, with billions of pounds potentially at stake. Importantly, claims related to DCAs will definitely go ahead, even though the process has been temporarily paused while they determine the next steps.
Hidden commissions, however, is a common law issue, now being tested in the courts. In these cases, brokers received commissions from lenders without clearly informing the consumer. The recent Court of Appeal ruling confirmed that failure to disclose these commissions properly breaches fiduciary duty, making lenders liable. The full extent of these claims will be clarified in a Supreme Court ruling set for 2025.
Unaffordable Lending, is when the lender offers a loan that the borrower can't afford. Like other loan claims, if the lender didn't do proper checks, then you can make a claim. More information can be found here.
Navigating these legal issues, especially DCAs, can be complex and difficult to understand. This is where claims management companies can help, ensuring you get the compensation you deserve without the risk of costly mistakes.
Car Finance Hidden Commissions: What the Court of Appeal Decided
In the Court of Appeal’s landmark decision, the judges ruled that:
Primary Liability: If no disclosure of the commission was made to the consumer, the lender is directly liable for the hidden commission.
Accessory Liability: If only partial disclosure was made but the consumer did not give fully informed consent, the lender could be held liable as an accessory to the broker’s breach of fiduciary duty.
The ruling also clarified that burying commission disclosures in small print is not enough. The commission must be clearly brought to the borrower’s attention for it to be valid.
While this ruling is significant, The Claims Guide can help navigate the complexities, ensuring no detail is overlooked and that your claim is properly handled.
Why DCAs Are Different - and Why You Should Act Now
Unlike the hidden commission claims, DCAs are part of the FCA’s regulatory framework, and the process for claiming compensation is already set in motion. The FCA’s decision to allow retrospective claims has opened the door for many consumers to receive compensation. The amount per claim is expected to average around £1,100, and the total compensation owed could be comparable to the PPI scandal in terms of value. At the Claims Guide we have an easy tool to estimate how much you may be owed here.
However, claiming for DCAs will be more complicated than with PPI. There are more legal hurdles to overcome, and consumers will need to provide detailed documentation to prove that they were subject to a DCA. It’s also essential to know whether your loan agreement falls under the FCA’s guidelines. Claims management companies are experts in this area, with the knowledge to guide you through the complexities and increase your chances of a successful claim.
What Remains Unclear?
While the FCA’s investigation into DCAs is straightforward, the Court of Appeal ruling has left some questions unanswered, particularly regarding hidden commissions:
How much detail is required in commission disclosures? The court ruled that the actual amount of commission should be disclosed, but this could change in future rulings.
Does the ruling apply to all brokers or just dealer-affiliated brokers? The case has left room for debate about whether independent brokers are also covered.
When is a lender liable? The court hinted that there may need to be further legal clarification regarding whether lenders can be held responsible for facilitating commission payments.
The Claims Guide can help you navigate these murky waters, ensuring that your claim is processed correctly and efficiently, whether related to DCAs or hidden commissions.
Why People Turn to Claims Companies
Navigating car finance compensation claims can be overwhelming, especially with the added complexity of DCAs and hidden commissions. While you can claim on your own, here is why many consumers choose to work with claims management companies:
Expert Legal Knowledge: With billions of pounds potentially at stake, claims management companies provide the legal expertise needed to handle your claim. They understand the ins and outs of the FCA’s regulations and common law, ensuring that your case is handled properly.
Avoiding Mistakes: A minor mistake in the claims process could result in your case being delayed or rejected. Claims management companies ensure that all the details are correct, reducing the risk of costly errors.
Time-Saving: Claims can be time-consuming, especially when dealing with complex legal processes. Claims management companies take on the heavy lifting, handling the paperwork, liaising with lenders, and making sure your claim is filed on time.
Higher Chance of Success: Claims management companies have experience in dealing with compensation claims, including DCA and hidden commission cases. Their expertise can increase the likelihood of a successful outcome.
What Next for Car Finance Claims?
With the FCA’s work on DCAs moving forward and the Court of Appeal’s ruling on hidden commissions, the car finance industry is facing a significant legal and financial shake-up. The Supreme Court review in 2025 will help clarify many of the outstanding issues, but for now, consumers affected by DCAs can move forward with their claims, potentially receiving compensation worth £1,100 per claim on average. Those with hidden commission can start the process now, but will have to wait for clarity from the courts until later in the year before knowing if they have a claim.
If you believe you’ve been affected by either of these issues, working with The Claims Guide could be the best way to ensure you get the compensation you’re entitled to. These experts can help you avoid mistakes, save time, and maximise your chances of success
You do not need to use a claims management company to make your complaint to your lender. If your complaint is not successful you can refer it to the Financial Ombudsman Service yourself for free.
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