Imagine walking into a car dealership, excited to pick up your new vehicle, only to be told, “Sorry, we have to wait.” This has become the reality for many car buyers in the UK. Big carmakers like Honda and BMW recently put a pause on car deliveries. Why? Because of a shocking new court ruling on motor finance deals, which experts say could be even bigger than the infamous Payment Protection Insurance (PPI) scandal. Let’s dive into what’s going on and why it’s causing such a fuss in the car industry.

What’s the Scandal About?

The scandal centers on how car sales are often financed in the UK. Many people buy cars by taking out finance deals, meaning they pay a monthly fee rather than the full price up front. To make these deals happen, dealerships work with banks or lenders and receive a commission, or a fee, from these lenders for each deal they close. But here’s the twist: these commissions are often hidden within the monthly payment, and customers don’t always know exactly what they’re paying for.

Recently, the Court of Appeal made a huge ruling, deciding that the way dealerships earn commission from car finance deals is unlawful unless it’s fully transparent to buyers. In other words, if the dealership doesn’t openly tell customers how much they’re getting paid by lenders, the deal could be illegal. This decision caught the entire car industry off guard and has led some dealerships to stop car deliveries temporarily.

Panic Hits Car Dealerships

When news of the ruling broke, car dealerships and carmakers were thrown into chaos. Honda and BMW quickly told their showrooms to hold off on delivering cars bought through finance deals. This was a big shock to both the dealerships and their customers. For days, cars were stuck in showrooms, with dealerships unable to hand them over to eager buyers.

Honda, for example, paused all financed car deals to better understand the ruling. A representative from Honda’s finance department explained, “We took a step back to make sure we’re fully compliant with the new requirements.” Thankfully, Honda and BMW have now resumed deliveries, using temporary fixes to make sure they’re following the court’s decision. However, this ruling has already caused many dealerships to review their practices and prepare for potential changes in how they disclose commission.

How Big Could This Get?

Lawyers and industry experts believe this scandal could be massive—possibly even bigger than the PPI mis-selling scandal, which cost the UK banking industry billions. Darren Smith, who leads Courmacs Legal, a company that deals with finance-related claims, said this could spark “30 to 40 million” claims against car finance companies. He added that his company alone has over a million clients waiting to file claims if the ruling stands. This court decision has opened the door for potential lawsuits against banks, carmakers, and dealerships.

Many believe this scandal could cause a “market failure,” meaning it could make financing cars difficult for everyone. If dealerships and lenders are forced to repay all commissions earned over the years, the financial blow could be so huge that some lenders might be unable to keep offering car finance. This would lead to fewer financing options for buyers and potentially even higher interest rates.

Why Did This Happen?

This ruling came about because the Court of Appeal found the current finance model unfair to consumers. In most cases, the commission fee is hidden in the car finance deal, meaning customers end up paying extra without knowing why. For years, car dealers added costs for things like extra warranties, paint protection, and tire insurance, which are often bundled into the deal.

One lawyer explained that the decision effectively challenges the Financial Conduct Authority (FCA)’s previous guidance on the matter. The FCA had not required dealerships to disclose commission amounts, so dealers were simply following common practice. But now, with the court ruling, this approach is seen as misleading and unfair to buyers.

Could Lawsuits Be on the Way?

With this court decision, lawyers across the UK are preparing for a wave of lawsuits. Many law firms, including some that have been working on car finance cases for years, are now ramping up efforts to help people claim refunds on mis-sold car finance deals. If these lawsuits succeed, dealerships, banks, and carmakers could be hit with enormous compensation costs.

One car industry expert warned that lenders and dealers face a “tens of billions of pounds” payout if these claims go through. This means lenders might struggle to keep enough cash on hand to keep offering finance options, causing trouble for future car buyers.

What Happens Next?

Currently, lenders and dealerships are hoping the case reaches the Supreme Court, where the ruling could be overturned. However, the Supreme Court only accepts about 30% of cases, meaning the law could stand as it is. If the court decides not to hear the case, the car finance model as we know it may have to change entirely.

Already, dealerships are scrambling to update their practices to be fully transparent about commission. Many have put in place systems to disclose the exact costs of each add-on so that buyers know exactly what they’re paying for. But until there’s more clarity, the car industry remains in a state of flux.