A motoring expert has warned that the car finance scandal could result in drivers and lenders losing out, as thousands of motorists await compensation.
Car dealers have set aside billions of pounds in potential compensation costs as they wait for the Financial Conduct Authority and the Supreme Court to decide on how compensation will work for motorists.
The Supreme Court is expected to rule on whether people taking out car finance loans should be owed compensation for not being properly informed about how commission was paid.
Hundreds of thousands of drivers have already used tools to register their interest in being involved in legal action if they believe they were mis-sold car finance.
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A leading motoring expert has warned that drivers could face higher costs following the car finance scandal
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Stuart Masson, editorial director of The Car Expert, described the Supreme Court judgement as “one of the most significant legal decisions in recent financial history”.
He suggested that members of the automotive industry were interested in influencing public perception, with some of the largest lenders already setting aside billions in anticipation of a verdict.
Despite optimism that drivers could receive up to £1,400 in compensation if they were mis-sold car finance, Masson warned the decision could have a disastrous impact on the whole automotive industry.
He said: “The car finance sector is critical to the functioning of the broader car industry. Simply put, without car finance there is no car industry. So this case, and the ongoing investigation into the car finance sector, are hugely important.
“There are potentially tens of billions of pounds at stake in this case, and regardless of who wins, the end result is likely to be that consumers will ultimately be worse off.
“One thing we can be fairly sure about, though, is that consumers are going to be shelling out for the cost of this for years to come.”
It is widely expected that the FCA will move forward with an industry-wide compensation scheme if the Supreme Court rules in favour of consumers.
This would likely be in the form of a mass redress scheme, which the FCA said would be outlined within six weeks of the Supreme Court’s ruling.
Masson said lenders would face compensation costs potentially reaching “tens of billions of pounds”, although this would be clawed back by increasing interest rates and fees on new loans.
He said a Supreme Court decision in favour of lenders would lead to an explosion in individual lawsuits and class action suits, similar to the PPI and Dieselgate scandals.
These lawsuits would likely take years to resolve and lead to further uncertainty among lenders and consumers, which could also push costs higher.
The expert added: “Ultimately, while consumers may secure payouts, there’s no escaping the reality that future finance deals will become more expensive as lenders seek to recoup their losses.
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The Supreme Court is expected to deliver a verdict on the car finance scandal in April
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“We may see a shift away from dealership-arranged finance toward direct lender-consumer arrangements, with lenders cutting dealers out of the loop to ensure they are fully compliant with relevant laws.
“This Supreme Court ruling is poised to reshape the car finance landscape, with repercussions that could extend far beyond the car industry.”
