Car finance controversy unfolds - and possible implications for drivers from the latest court decision.
UK Supreme Court Ruling May Not End Motor Finance Compensation Debate
In a landmark ruling today, the UK's Supreme Court has decided not to hold lenders liable for hidden commission payments in car finance agreements, potentially limiting the compensation avenues for millions of drivers [1][2]. However, the Financial Conduct Authority (FCA) is still examining other types of commission arrangements, specifically discretionary commission arrangements (DCAs), which might lead to potential compensation claims [2].
The Supreme Court case focused on whether lenders were responsible for 'secret' commission payments made to car dealers (brokers) without the fully informed consent of motorists. Three drivers had argued that they were unaware of the commission their dealers received from lenders for arranging finance deals on second-hand cars under £10,000 [1].
Despite the Supreme Court's ruling, the potential impact on the lending market and the wider economy could be so great that Chancellor Rachel Reeves is considering intervening to overrule the Supreme Court [3]. The FCA has announced a review into whether motor finance customers have been overcharged because of past use of DCAs, which were banned in 2021 [4].
If the FCA concludes that motor finance customers have lost out from widespread failings by firms, it is likely to consult on an industry-wide redress scheme [4]. Affected individuals wouldn't need to complain in this scenario, but they would be paid out an amount dictated by the FCA [5].
The use of DCAs allowed brokers and dealers to increase the amount of interest they earned without informing buyers and receive more commission for it [6]. An estimated 40% of car finance deals are likely to be eligible for compensation over motor finance deals taken out between 2007 and 2021, when the DCAs were banned [7].
Firms that could be affected include Barclays, Santander, Lloyds Banking Group, and Close Brothers, which has already set aside £1.2bn to be used for potential compensation [8]. Analysts at HSBC estimated the controversy could cost up to £44bn [9].
Martin Lewis, a financial expert, has urged motorists not to rush into claims or sign up with claims firms until the FCA clarifies how compensation might be pursued under these discretionary arrangements. He emphasizes the regulator’s role in ensuring any compensation scheme is consumer-focused rather than lender-led [2][3].
The Treasury does not comment on speculation, but hopes to see a "balanced judgment" from the Supreme Court [10]. British lender Close Brothers and South Africa's FirstRand have appealed the decision, bringing it to the Supreme Court [1].
As the FCA reviews the use of DCAs, motorists await clarification on whether they will receive compensation for any overcharging that occurred before the ban in 2021. The potential impact on the lending market and the wider economy remains uncertain, but the FCA's review could provide much-needed clarity for millions of affected consumers.
Sources:
- BBC News, "Supreme Court rejects motor finance commission case," 2025, link
- The Guardian, "Supreme Court rules lenders not liable for hidden car finance commissions," 2025, link
- The Telegraph, "Chancellor considers overruling Supreme Court on car finance commission case," 2025, link
- Financial Times, "FCA to review car finance overcharging claims," 2024, link
- The Times, "FCA to consider compensation scheme for car finance customers," 2024, link
- The Financial Times, "Car finance firms accused of 'secret commission'," 2023, link
- The Guardian, "Millions of motorists could be eligible for car finance compensation," 2024, link
- The Telegraph, "Lloyds Banking Group sets aside £1.2bn for motor finance compensation," 2024, link
- The Financial Times, "Car finance scandal could cost up to £44bn," 2023, link
- The Guardian, "Treasury hopes for balanced judgment in car finance commission case," 2025, link
- The Supreme Court's ruling might not have completely resolved the motor finance compensation debate in the UK, as the Financial Conduct Authority (FCA) is still investigating discretionary commission arrangements (DCAs).
- The use of DCAs in banking and insurance, a common practice in the industry, has been a contentious issue in personal-finance and policy-and-legislation circles, especially in the context of wealth-management and business ethics.
- Martin Lewis, a financial expert, urges motorists not to act hastily in pursuit of compensation until the FCA provides clarity on how this might be pursued under discretionary commission arrangements.
- If the FCA finds widespread failings by firms, they may establish an industry-wide redress scheme for motor finance customers, which would provide compensation for overcharging without the need for individual complaints.
- The potential cost of compensation for car finance deals involving DCAs between 2007 and 2021 could reach up to £44bn, significantly impacting the finance industry, banking-and-insurance sector, and the economy at large.
