Marcus Johnson
Marcus Johnson says he hopes his case will help others
By his own admission, Marcus Johnson's metallic blue Suzuki Swift was an unremarkable car – a bit of a workaround bought after passing his driving test.
But the way in which this unremarkable vehicle was sold is now at the heart of a far more remarkable multi-billion pound saga.
Lenders and dealers have been accused of hiding commission payments made when purchasing cars in financial transactions.
A recent Court of Appeal ruling in the case of Mr Johnson and two other car buyers raised the possibility of millions of motorists receiving compensation.
Not everyone agrees with this conclusion.
As MPs prepare to question the financial regulator's boss over his role, there appears to be consensus in the industry that only the country's highest court should decide this matter.
If this happens, it could call payments into question, or at least delay them for several months.
Marcus Johnson
Mr Johnson bought his Suzuki Swift seven years ago after passing his driving test
Mr Johnson from Cwmbran, Torfaen, South Wales, was 27 when he was looking for his first car in 2017.
He was cycling to and from his job as a factory supervisor. He and his fiancée, now wife, Kirsty, took buses and taxis to visit family and friends after moving.
Buying a car made sense. The same was true for going to a dealership whose ad he “heard 10 to 15 times a day” on the radio at work.
He took the Suzuki for a test drive, decided to buy it and paid a deposit.
“I thought it was a financially sound decision to get a newer car, so it would have fewer problems,” he says.
“Ridiculous” commission
Mr Johnson earned just over £13,000 a year, so finances involved a hire purchase agreement and an additional personal loan.
Little did he know that the financier would pay the dealer a commission of £1,650, around a quarter of the amount he had borrowed.
“I always thought car dealers made their money by making a profit on the cars they sold rather than arranging financing,” he said in his witness statement.
He later spotted a Facebook post inviting him to fill out a complaints form regarding such an agreement. After discussion with a lawyer, he said he realized that this commission was “ridiculous”.
“I had no idea before. Commission as an integral part of the industry is not necessarily a bad thing,” he says. “But it was kept out of sight. If they're cheating customers, to me that's disgusting.”
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His case was taken to court. He says he almost missed the date after the notification went into his spam folder. He lost.
But in the Superior Court of Appeals, his case was grouped with two similar cases, and all three judges ruled unanimously in their favor.
The other two car buyers involved were Andrew Screw, described as “a postman with a penchant for fast cars”, and nursing student Amy Hopcraft.
Mr Screw has since expressed how shocked he was by the impact of the decision, but it was the principle of fairness that excited him.
The same goes for a surprised Mr Johnson, who never thought his case would come to court. But he says he's someone who doesn't like to think that people are losers.
“And a lot of people who didn’t have the money to buy a car were scammed,” he says.
A wider impact
The judges' decision was a victory for the trio, but – more importantly – opened the door to claims from many more motorists.
In the conclusions of a clear 46-page judgment there are three even clearer words: “fully informed consent”.
They ruled that it would be illegal for the lender to pay a commission to the dealer without the buyer's fully informed consent.
In other words, customers must be clearly informed of and agree to the amount of commission that will be paid, without these details being buried in the terms and conditions of the loan.
Keeping in mind that around 80-90% of cars are purchased through financing – or around two million vehicles per year – the risk that many past and present deals will fail this test is high.
Analysts have suggested millions of buyers could each receive hundreds of pounds in compensation. Estimates of the total bill are as high as £30 billion.
Banks have set aside hundreds of millions of pounds for possible compensation. Some lenders have also temporarily suspended new transactions. The affair caused shock waves in the automobile industry and in the financial sector as well.
Some commenters have suggested this could extend beyond cars, to other “big-ticket” items purchased using the financing.
“Justice delayed”
Kevin Durkin of HD Law, who represents Mr. Johnson, says the Court of Appeal's decision was clear and that reparations should begin to be paid when necessary.
Failure to do so means “justice delayed is justice denied,” he says.
“The bottom line in all of this is that it’s the customer who continues to suffer financially,” he says.
However, the story is far from over.
David Postings, chief executive of UK Finance, which represents the lenders, told MPs last week that “the decision is subject to different interpretations”.
Defendants in the case involving Mr Johnson, Mr Screw and Ms Hopcraft have asked the Supreme Court to review it.
Banks have already won their cases in the Supreme Court regarding massive compensation claims. In 2009, she agreed with them on the issue of bank overdraft fees.
However, banks have had to pay out billions of pounds because of the PPI (payment protection insurance) scandal.
The City regulator, the Financial Conduct Authority, has written to the Supreme Court seeking a speedy ruling on car finance, given the potential impact on the market and consumers.
In the meantime, he will face questions – starting with the appearance of high-profile figures, including Director-General Nikhil Rathi, before the Treasury Committee on Tuesday.
Has the FCA gone far enough?
In 2021, the FCA banned transactions where the dealer received a commission from the lender, based on the interest rate charged to the customer. She said this creates an incentive for the buyer to be charged a higher rate than necessary.
By banning these so-called discretionary commission deals, he said it would save drivers £165 million a year.
Since January, she has been considering whether compensation should be paid to people benefiting from these agreements before 2021.
However, it did not move to ban commissions or fees on a broader scale, or stipulate how dealers should disclose that they were receiving payments from lenders.
It could now face the anger of motorists who say it should have done more to protect them, as well as that of lenders and dealers who believe the regulator has given them the green light to continue paying commissions from the same way.
It plans to extend the time available to dealers to process complaints.
He wants any massive compensation, if it were to happen, to be administered in an orderly manner. The nature of such a remedy is currently uncertain.
So, for now, disgruntled drivers who believe they are entitled to a claim find themselves stuck at red with no clear idea of when the lights will change.
