Last week, the UK Financial Conduct Authority (FCA) told the Supreme Court that a prior Court of Appeal ruling in the country's ongoing motor finance scandal went "too far" and could destabilize businesses, as reported by The Guardian.
Early last year, the FCA launched a probe into auto lenders' use of "discretionary commissions," which incentivized finance brokers and dealers to raise interest rates on auto loans. In October, the Court of Appeal ruled that dealers have a fiduciary duty to offer the best possible financing terms to customers and that failing to disclose the commission payments was unlawful.
Close Brothers and FirstRand are challenging the decision in the Supreme Court, with their lawyers comparing car dealers to shop workers who are "there to make a sale" rather than financial advisors. The National Franchised Dealers Association warned that the ruling could create "financial chaos." If the Supreme Court upholds the Court of Appeal ruling, lenders may face a total compensation bill of up to £44 billion.
In a written submission to the Supreme Court, the FCA argued that car dealers "do not typically" have a duty to act in consumers' best interests and that treating them as fiduciaries contradicts existing regulations. The Treasury also expressed concern that the ruling could deter investment. However, the FCA cautioned the Court against dismissing potential bribery concerns in the commission payments.
Consumer advocates have criticized the FCA for seeming to side with the industry over consumers. "The regulator should be standing up for consumers, not protecting lenders," said Darren Smith of Courmacs Legal, a law firm that is handling over 2 million motor finance claims.
The Supreme Court is likely to issue its judgment in July.
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