Car loans scandal ruling 'goes too far': FCA raises alarm as industry faces £44bn bill

A ‘sweeping’ legal ruling that could land car finance firms with a £44billion compensation bill ‘goes too far’, the City watchdog has warned.

Lawyers for the Financial Conduct Authority (FCA) yesterday intervened in a crucial Supreme Court hearing on the commission payment row that has been dubbed PPI on wheels after the payment protection insurance scandal.

British lender Close Brothers and South Africa’s FirstRand, which owns MotoNovo Finance, are fighting to overturn a ruling that would put banks on the hook for redress payments. 

Judges ruled last year that motor finance lenders must fully inform customers about the existence and size of commissions when selling car loans.

As the three-day Supreme Court hearing kicked off in London, the FCA warned that the decision could have a ‘significant’ impact on other industries where commissions are paid.

The watchdog said ‘motor dealer brokers do not typically owe fiduciary duties’ – meaning they are not required to put the customer’s best interests ahead of their own.

Concerns: The FCA said ‘motor dealer brokers do not typically owe fiduciary duties’ – meaning they are not required to put the customer’s best interests ahead of their own

‘Treating all motor dealer brokers as fiduciaries would be too sweeping an approach,’ the FCA said, adding that the ruling went ‘too far’.

And the regulator raised concerns that the ruling could extend to other areas where kickbacks are paid, such as home insurance.

It could have a ‘significant, unintended read-across to other regulated intermediaries, which in turn may generate a range of unanticipated legal consequences,’ the watchdog said.

However, it added that judges ‘should exercise a degree of caution’ before accepting the lenders’ arguments that they were not bound by laws banning the payment of secret commission.

The intervention raised eyebrows given the regulator’s duty to protect consumers.

Darren Smith, managing director of Courmacs Legal, a firm dealing with more than 2.2m motor finance claims, said: ‘The regulator should be standing up for consumers, not protecting lenders who have taken them for a ride. People deserve their money back after being ripped off and they deserve it now.’

Solicitors for Close Brothers said that the judgment would have ‘profound and adverse implications for the motor finance industry and customers’. And lawyers for

FirstRand argued that ‘something has gone wrong’ in the decision-making process as they sought to get the ruling lifted.

The Court of Appeal judgment published in October rocked the industry and sent the lenders most exposed to car finance into a tailspin. 

The scale of the potential payout would make motor finance mis-selling the most expensive consumer banking scandal in Britain since PPI in the 2000s, which cost banks £50billion.

Car makers and industry groups have been fined more than £460million by regulators for ‘colluding to restrict competition’ over vehicle recycling.

Dishing out a £78million fine in the UK, the Competition and Markets Authority (CMA) said the firms broke the law because they agreed not to compete with each other when advertising what percentage of their cars can be recycled. 

And the EU anti-trust watchdog simultaneously imposed penalties worth £383million.

The car makers involved include BMW, Ford, Jaguar Land Rover, Peugeot Citroen, Mitsubishi, Nissan, Renault, Toyota, Vauxhall and Volkswagen.

Mercedes-Benz was not fined because it reported it to the watchdog.