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Car buyers and banks are bracing themselves for the outcome of a review into a multi-billion-pound scheme designed to compensate borrowers who paid too much commission for car loans. 

However, critics say the scheme may be overly broad and complex, potentially delaying claim resolutions for years. 

It follows a year-long battle between lenders, legislators and even the government over three cases centred around salespeople being incentivised to charge higher interest rates –  without the knowledge of buyers – so they could bank an increased commission. 

This ended at the start of this month with a landmark ruling at the Supreme Court. Lord Robert Reed ruled that in two of the cases such arrangements – known as discretionary commission arrangements (DCA) – were legal, but he judged that in the the third, known as the Johnson case, the value of the commission (over half the sale price) and how it was disclosed pointed to an unfair relationship between banks and car dealers, making it illegal under the Consumer Credit Act. 

In the wake of the judgements, finance watchdog the FCA announced it will consult the finance industry on a scheme to compensate car buyers who paid excessive commission charges on car loans going back as far as 2007.

The pot for those affected is set to be between £9bn and £18bn. While incredibly high, it is more than half the forecasted £44bn and leaves lenders – especially the likes of Black Horse – celebrating the rulings. 

During the review, which is set to be published in October, the FCA says it will examine how lenders should assess claims and what compensation may be due.

There are concerns, however, that the process risks being held up by the complex natures of the cases as well as contradictory views held by the FCA and the courts. 

For example, the FCA deemed it was the nondisclosure of particular features within lending agreements, rather than the features themselves, that were deemed unfair, while the Supreme Court ruled that nondisclosure or partial disclosure of a commission paid by a finance company to a dealer was not. 

Faced with these partially opposing statements, the FCA’s task will be to weigh up a range of factors and decide what it considers to be unfair. These will include the ‘characteristics’ of the consumer – a term it has yet to define but which relates to the Court’s comment regarding their ‘sophistication’ – whether the loan complied with regulatory rules and the extent and manner of a commission’s disclosure. 

The Johnson case, in which it was found the value of the commission relative to the loan was unfair, means this factor, too, will be considered, as will the nature of the commission.

Alongside this, a major part of the FCA’s review will be deciding what is an unfair commission payment, where that payment was not disclosed to the consumer, such as, for example, the 55% in the Johnson case. 

The FCA says in calculating compensation it will be informed by the degree of harm a customer suffered while considering the need to ensure that affordable loans for vehicles can continue to be offered. The Supreme Court decided the appropriate remedy in the Johnson case was the repayment of the commission. The FCA says it will consider this option alongside alternative remedies, but these are unlikely to exceed the full repayment of commission and could actually lead to lower payments. 

The FCA estimates most claimants will receive less than £950 in compensation per finance agreement to which interest of around 3% (per year) will be added.

Following the ruling, the values of the major banks soared as the City realised the size of the compensation bill they faced had more than halved in size. This alone should tell car buyers who apply for redress that their chances of achieving it are much reduced. 

Added to this are the challenges facing the FCA’s scheme, including the near-impossibility of lenders being able to produce documents relating to older finance agreements, many completed back in 2007. 

Philip Salter, former FCA director of retail lending, said: “The FCA’s statement is broad and complex. The Supreme Court provided legal clarity, but the challenge for firms now will be preparing for an immense operational and financial task. 

“The FCA’s approach requires firms to analyse their whole historical loan book against a complex matrix of ‘unfairness’.” 

Others criticised the problems of establishing consumer loss. John Phillipou, chairman of the Finance and Leasing Association, said: “The outline of the redress scheme is impractical. I understand the ‘doing right’ by the consumer, but one of the things is showing loss to consumers. That’s going to be hard to prove.” 

In its defence, FCA chief executive Nikhil Rathi said: “[The] judgement helps us because we have been looking at what is unfair. Prior to this judgment, there were different interpretations of the law coming from different courts. It is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated.” 

Among a supermarket car park’s worth of not-quite-bullseye early 21st-century Peugeots, the 407 Coupe got a bit closer than many to pinioning the target. 

It had presence, it had a back that was fast, it was quite low, quite wide and quite long-of-bonnet. From the rear three-quarters, at least, it was quite pretty too. It was also a lot more than a 407 saloon with no rear doors and a lengthened pair up front. Peugeot widened the 407’s track, filled out its flanks and went to the expense of changing every single exterior panel in a quest for a look that might exude svelte muscularity.

The Coupe was lower than the saloon by 44mm. This proportion change usefully lowered its centre of gravity by 25mm, a gain further capitalised on by lowering the driving position a couple of centimetres. The lowest section of the bodywork was pulled out to complement the wider stance – the rather flat flanks above were broken with a neat, body-colour trim strip, while the composite boot lid was terminated with a flick of spoiler that was also the end point for the gently rising waistline. The Peugeot’s overhangs were tweaked as well.

Hmm, the overhangs. The 407 saloon was born with a nose to make Cyrano de Bergerac less of a standout, the plentiful structure forward of the 407’s front wheels improving its crash and pedestrian impact capability – although the latter performance scored only two Euro NCAP stars to the former’s five.

Inexplicably, Peugeot lengthened this already overlong bodywork by 55mm, attempting to disguise it with a trio of slanting slashes on each side of the front bumper, to middling effect. Slathering on another 85mm of substance to the Coupe’s rear end didn’t really compensate either. Nor did the 407’s transverse front-drive layout, this mechanical packaging almost invariably positioning the front wheels a long way from a car’s grille. The result was a coupé that looked more cruiser than back-lane blaster, and that was exactly what this Peugeot turned out to be.

And a mighty effective cruiser too – if autoroutes, motorways and autostrada were your commuting destiny and hell. It was quiet, comfortable and relaxingly stable at high speeds, the experience enhanced in some models by an exceptional JBL stereo and a colourful infotainment system that was no more than moderately obtuse to use.

The aura of refinement and quality were heightened by the Coupe’s exceptionally rigid structure, the noise-quelling effects of laminated screen and side windows, the superb sealing of the frameless doors and the fact that all models bar the base ‘S’, a very rare beast, came with leather.

That Peugeot was bothered about quality was also evident in the way the 407 Coupe was built. Rather than advancing down a busy assembly line in company with 407 saloons and SW estates, the Coupe was built on a dedicated, slow-moving assembly line at PSA’s Rennes factory in western France, which it shared with the contemporary Citroën C6. 

The idea was to heighten the craftsmanship applied to both cars, each being the flag-bearers of their makers’ ranges. Truth was that the line probably ran even more slowly than PSA had envisaged – demand for neither car lighting up Peugeot or Citroën showrooms across Europe – but your reporter saw it in operation and can vouch for the care taken with the construction of this pair.

Your quiet cruising could be enjoyed behind a variety of four- and six-cylinder engines, including 2.2 and 3.0-litre petrols and 2.0 and 2.7-litre diesels. Of these, it was the 2.7 twin-turbo 24-valve diesel that best suited the 407’s character, its thumping 1900rpm, 330lb ft deluge of torque working to great effect with the six-speed automatic that this version always came with. The diesel V6 was largely developed by Ford in a joint venture with PSA, yielding oil-brining V6s for Peugeot, Citroën, Land Rover and Jaguar, and a diesel V8 for Ford to use in its American pick-ups. At the time, it was reckoned to be one of the best big diesels out there.

You could also have a 208bhp 3.0 petrol V6, initially with a slightly uncooperative automatic, later with a manual – this combination being one of the rarest 407 Coupes of all. But a manual transmission, which was usually teamed with the four-cylinder engines too, didn’t do much to make a sports car of this Peugeot despite its many dynamic merits.

These included impressive resistance to body roll, terrific roadholding and distinctly unTrumpian directional stability. But it didn’t feel especially agile, and attempting to trim its trajectory with the throttle was as effective as this technique would be in the cab of a high-speed train. It cornered and cornered well, the 407 Coupe, but you were very distant from experiencing the frisson of delicately charging bends at the edge of adhesion, once a Peugeot speciality.

Better, then, to enjoy its luxury and aboard the top-of-the-range GT, a standard of finish and equipment that provided plenty to savour. The GT came with the so-called Integral leather pack, which saw the dashboard, door trims and glovebox skinned with beautifully applied hide, the effect particularly sumptuous if the car was ordered with oxblood red leather. You also got a colour sat-nav (a colour display wasn’t a given back in 2006) and a GSM phone connection (remember those?), which is probably of limited use now. You also got a car that turned out to be rare and, at four years, relatively short-lived.

None of the 407 Coupes came cheap and this, coupled to a disappointingly firm ride, deterred buyers. Though probably not as much as that over-protuberant nose. The 407 Coupe had lost the athletic grace of its 406 Coupe predecessor, the older car being the more popular buy and the more chased after today. Making the 407 somewhat of a bargain.