Lenders Get Reprieve in UK Motor Finance Case From Top Court

A group of lenders won a major reprieve in a pivotal UK car finance case, after the country’s top judges agreed to rein in a lower court’s ruling that could have cost the banks billions more in consumer payouts.

The Supreme Court said on Friday that car dealers can act in their commercial interests when arranging loans for buyers, dismissing most of the arguments that dealers must obtain consumers’ informed consent to charge commission.

“It was not a fiduciary: that is to say, a person entirely committed to acting in another person’s interest without any interest of his own,” Judge Robert Reed said. “On the contrary, the car dealer was at all times pursuing its own commercial interests in achieving a sale of the car on profitable terms.”

However, the judges upheld one of the Court of Appeal’s rulings, saying the Johnson case stood because of several factors including the high level of commission the consumer was charged and the fact that the customer was expected to read a lengthy legal contract to understand the size of that fee.

The judgment will now set the framework for the City watchdog’s proposed redress program on lenders that some analysts estimated could cost banks as much as £30 billion ($40 billion).

Close Brothers Group Plc and FirstRand Ltd. appealed the case to the top court after previous judges said that consumers taking out car loans without giving informed consent about commission were treated unfairly.

The ruling was issued after the London stock markets had closed to prevent any market disruption, Judge Reed said. Lloyds Banking Group Plc and Barclays Plc American depository receipts rose more than 2% at 5:06 p.m. in London.

Photograph: Used cars for sale at Big Motoring World’s showroom near Chatham, UK, on Friday, Feb. 3, 2023. Used car prices took off in 2020 when consumers flush with lockdown cash sought used cars as an alternative to public transport. Photo credit: Chris Ratcliffe/Bloomberg