Supreme Court: UK car finance scandal ruling blocks payouts, could compensation claims still come, news update
Millions of drivers were hoping for a payout over secret car finance charges ⚖️
- Supreme Court rules lenders not liable for “hidden” car finance commission payments
- Decision overturns Court of Appeal ruling that had backed drivers’ right to compensation
- Around 2m cars a year are bought on finance, many with now-banned commission deals
- FCA to decide within six weeks if it will set up a central compensation scheme
- Tens of thousands of complaints remain on hold until the watchdog makes its move
A landmark ruling made today (August 1) has determined whether millions of motorists are entitled to compensation over “hidden” commissions on car finance deals.
The case centres on hire-purchase agreements signed before 2021, where car dealers acting as credit brokers received commission from lenders — without fully informing the customer.
In October 2024, the Court of Appeal ruled that these undisclosed payments were unlawful and that affected drivers should be compensated.
The case was brought by three motorists who were unaware dealers were being paid by lenders for arranging their finance. Two lenders, FirstRand Bank and Close Brothers, challenged that ruling in the Supreme Court, calling it an “egregious error”.
The Financial Conduct Authority (FCA) also weighed in, arguing the earlier judgment “goes too far”. But the three motorists had fought to uphold the original ruling.
The Supreme Court’s decision will have major implications for car finance customers across the UK. But what exactly did it rule, and is there compensation coming down the road for millions of drivers?
What is car finance?
Around two million cars are bought on finance every year — but many drivers may have unknowingly paid too much in interest due to now-banned commission deals between lenders and dealerships.
These so-called discretionary commission arrangements (DCAs) gave sales staff a financial incentive to hike up your interest rate, leaving you with a higher monthly bill.
The Financial Conduct Authority (FCA) banned these deals in 2021, but it’s now deciding whether affected drivers should be compensated.
In the meantime, tens of thousands of complaints made to the Financial Ombudsman or through the courts were paused while the watchdog reviewed the issue.
What has the Supreme Court ruled?
Millions of motorists will miss out on potential compensation after the Supreme Court ruled that lenders are not liable for hidden commission payments made to car dealers as part of finance agreements.
The UK’s highest court overturned a previous ruling by the Court of Appeal, which had found that “secret” commission deals — made before 2021 without the customer’s fully informed consent — were unlawful.
The Supreme Court sided with the lenders. Delivering the decision, Lord Reed said the appeals were allowed, ending hopes of a wider compensation scheme for millions of car finance customers.
Is there compensation coming?
As of now, compensation is not guaranteed, but it’s still possible, depending on what the Financial Conduct Authority (FCA) decides next.
Though the Supreme Court’s ruling on sided with the lenders, meaning they are not automatically liable for hidden commission payments - a blow to many compensation hopes - the FCA is still investigating whether drivers were treated unfairly.
The FCA has said it will announce within six weeks of the ruling whether it plans to pursue a central compensation scheme.
If it does go ahead, it will consult on the details for another six weeks — including who qualifies, how compensation would be calculated, and what years it would cover.
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