Car finance: What does the Supreme Court ruling mean and can I claim compensation?
In a high-stakes legal battle that could have opened the floodgates for payouts, the UK's highest court ruled in favour of lenders on Friday, overturning a previous judgment that had deemed so-called 'secret' commission arrangements unlawful.
But while the court sided with finance companies, the ruling does not shut the door entirely on redress for consumers.
Here, ITV News explains what the Supreme Court case entailed and what to do if you think you are owed compensation.
What is the background of the case?
The case involved three drivers who bought cars on credit before 2021.
Unknown to them, car dealers earned commission from the finance companies, a common practice at the time.
The Court of Appeal ruled last year that these 'secret commissions' were unlawful unless fully disclosed.
But on Friday, the Supreme Court overturned that decision, siding with lenders FirstRand Bank and Close Brothers.
While the claimants said they were misled, the judges said car dealers were acting in their own commercial interests and did not owe buyers a duty of undivided loyalty.
One claimant, Marcus Johnson, did still receive compensation under a different law for an 'unfair relationship,' so that route may remain open to others.
What did the Supreme Court say?
Secret commissions are not automatically illegal.
Car dealers do not have a fiduciary (loyalty) duty to act solely in the customer's interest when arranging finance.
The court did not rule out compensation entirely - some cases may still qualify under the Consumer Credit Act or if further regulations apply.
What does the Supreme Court ruling mean for consumers?
The Financial Conduct Authority (FCA), the UK's financial watchdog, is now expected to announce whether it will launch a formal redress scheme, potentially offering relief to drivers who unknowingly paid more for their car loans because of commission-based incentives given to dealers.
That decision is due by 8 am on Monday, and it could affect millions of people who bought vehicles on finance before 2021.
If the FCA decides to proceed with a redress scheme, it is likely to clarify what type of motor finance arrangements it applies to and potentially include all deals where people were not told clearly enough, or at all, that the car dealer was receiving commission.
A scheme is intended to be simpler for consumers than making a direct complaint to providers.
What is the advice to customers now?
Consumer finance expert Martin Lewis has strongly urged any customers who think they have been affected to wait for the FCA announcement and not sign up to claims firms.
Adverts from claims management companies have sprung up significantly in the lead up to the court decision, but some regulators have been warning against using them as people may be charged for a service they ultimately do not need.
Following the Supreme Court ruling, Mr Lewis posted on social media platform X: "CAR FINANCE DO NOT DO ANYTHING NOW. DO NOT SIGN UP TO A CLAIMS FIRM. PLEASE SHARE."My suspicion is the FCA will within weeks announce consultation on a redress scheme for discretionary commission cases.
"You may not even have to claim it, could be automatic. And with excessive commissions, I suspect more guidance will come on that at a similar time."If you sign up to a claims firm now, you may have to give it a cut even if it does nothing. So just sit on your hands for now."
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The total cost of the compensation scheme is expected to rise above £9billion with the FCA estimating that most individuals will probably receive less than £950 in compensation. The consultation will launch by early October. If the compensation scheme goes ahead, the first payments should be made in 2026. What should you do if you think you are eligible? People who have already complained don't need to do anything, according to the FCA. However, anyone who is concerned they were not told about commission and think they may have paid too much for their car finance lender should complain now. There is no need to use a claims management company or law firm and doing so could cost someone around 30 per cent of any compensation paid. The FCA recognises that car finance customers want to receive any compensation owed quickly while car finance firms, lenders and investors want certainty. 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The watchdog has been probing DCAs since January 2024. Motorists must sit tight for six weeks as the FCA decides if it will set up a compensation scheme. This could cost lenders somewhere in the region of £5billion to £13billion, accountancy firm BDO says. WHAT DOES THE FCA SAY? The FCA says: Our detailed review of the past use of motor finance has shown that many firms were not complying with the law or our disclosure rules that were in force when they sold loans to consumers. Where consumers have lost out, they should be appropriately compensated in an orderly, consistent and efficient way. Some consumers have challenged their agreements with lenders through the courts. On Friday the Supreme Court ruled that in many cases commission payments could be legal, but a lender did act unfairly – and therefore unlawfully - due in part to the size of the commission it paid to the motor dealer and how it was disclosed. 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