The UK Supreme Court is set to rule on a case involving thousands of car loan borrowers, potentially leading to payouts of tens of billions of pounds. The controversy surrounds commissions paid by lenders to dealerships for higher interest rates on loans.
In 2017, Marcus Johnson bought a Suzuki Swift from a dealership in Cardiff and was unaware that his interest payments would fund the commission. The Court of Appeal ruled in his favour, ordering the lender FirstRand Bank to refund the commission plus interest. Now, the Supreme Court will hear similar cases against FirstRand and British bank Close Brothers.
Analysts estimate that if the court sides with borrowers, it could cost banks up to £44 billion. This would put it on a similar scale to the payment protection insurance (PPI) scandal, where major lenders paid out £45-£50 billion.
The government had sought to intervene in the case, citing concerns over economic fallout. However, the Supreme Court has rejected this attempt. British banks have set aside significant sums, including Lloyds Bank’s nearly £1.2 billion. Which! estimates that the total compensation could be as high as £16 billion.
A financial watchdog is waiting for the ruling before deciding whether to start a programme for automatic compensation. Analyst AJ Bell notes that even if the Supreme Court upholds the judgement, it may limit and reduce any compensation payments, representing the best-case scenario for lenders.
Source: https://finance.yahoo.com/news/uk-car-loan-scandal-could-013158550.html