Background to the mis-sold car finance cases
The Supreme Court car finance decision could affect millions of consumers. As a consumer expert, I explain what the ruling means, whether you may be able to claim and what to do next.
Nine out of ten purchases of new cars are bought on finance, using loans. The Supreme Court decisions this week on car finance mis-selling could potentially have cost banks and other lenders billions of pounds in compensation payments.
The cases heard at the Supreme Court were interwoven and brought by three consumers who had bought second hand cars using car finance. They had won at the Appeal Court but finance companies Close Brothers and Motonovo appealed at the highest level.
On 1 August 2025 the Supreme Court made a decision on 3 distinct issues:
Whether undisclosed commissions amounted to bribery
The Court considered if commission payments made by car finance lenders to car dealers, without consumer knowledge, constituted bribery under common law. The Supreme Court ruled “No”. They found that dealers acted in their own commercial interest, and therefore such payments did not breach common law.
Whether dealers owed a fiduciary duty to customers
The Court considered if dealers acted as fiduciaries with a duty of loyalty to vehicle buyers. It ruled that car dealers did “not owe” such a duty unless explicitly undertaken. Therefore, most consumer claims based on an alleged breach of fiduciary duty would fail.
Whether commission non‑disclosure rendered agreements “unfair” under the Consumer Credit Act
In one of the three test cases, the Court found the customer Mr Johnson had been placed in an unfair relationship due to excessively high – and undisclosed – commission. It was 55%! As a result, that claimant was awarded compensation, made up of the full commission plus interest. However, other claims were dismissed.
@thecomplainingcow What does the supreme court decisions on car finance lending mean for consumers? #carfinance #SupremeCourt #FCA #Lending #commission
What do the Supreme Court decisions mean for consumers?
News reports previously suggested that millions of consumers would be in line for compensation. However, eligibility for compensation is now restricted to those who have paid an excessive amount of commission.
A decision may have forced some companies to go under and not be able to pay out and then, in turn, fewer car loans would be available, putting up prices for customers.
What about the Discretionary Commission Arrangements (DCAs)
DCAs were banned by the Financial Conduct Authority (FCA) from 28 January 2021. These agreements involved dealers being paid more in commission if they secured a higher interest rate. In December 2024 the FCA extended its pause on DCA cases going through the Financial Ombudsman to all car finance commission complaints. The regulator was waiting to see if decisions made at the Supreme Court would affect how complaints about DCAs should be judged.
Government involvement in car finance
In March 2025 The Guardian reported Rachel Reeves considers overruling supreme court in £44bn car finance scandal. The article said: Under
Treasury contingency plans being discussed for the event that justices decide to uphold the entirety of last October’s shock appeal court ruling that customers may be entitled to billions in compensation, the government would retrospectively change the law to cut liabilities for lenders.
The Treasury was concerned that upholding decisions would affect the economy and growth. It made a submission to the Supreme Court which was thrown out, as the Court stated that it only dealt with matters of the law.
Responding to the decision on Friday, a spokesperson for the Treasury said:
We respect this judgment from the Supreme Court and we will now work with regulators and industry to understand the impact for both firms and consumers.
We recognise the issues this court case has highlighted. That is why we are already taking forward significant changes to the Financial Ombudsman Service and the Consumer Credit Act.
These reforms will deliver a more consistent and predictable regulatory environment for businesses and consumers, while ensuring that products are sold to customers fairly and clearly.”
What happens now to car finance?
I recommend to anyone affected to be patient and hold tight over the next few days, as there is a lot to work though! The judgement itself is 101 pages long! The FCA will be consulting on how to implement a redress scheme. and will provide clarity on the definitions of terms such as “unfair relationship” and “unfair commission”.
It says that is working over the weekend to decide on a redress scheme. It promises to provide clarity on Monday 4 August 2025 before the stock markets open.
FCA reaction to Supreme Court motor finance judgment
It is likely that there will be a redress scheme and at least some of it will be automatic.
Should I contact a Claims Management Company?
Very importantly, do not use a Claims Management Company (CMC). You do not need another company to be become involved in making the claim for you. They would take a huge percentage of your compensation claim in exchange for very little effort.
Don’t engage with CMCs under any circumstances!
Latest from FCA – 3 August 2025
The FCA announced on 3 August 2005 that a consultation will be published by early October and any scheme will be finalised in time for claimants to start receiving compensation next year.
It estimates the cost of any scheme, including compensation and administrative costs, to be no more than £9 billion, warning that a total cost of £13.5 billion is “more plausible”.
More details are available on the FCA website in the article titled “FCA to consult on motor finance compensation scheme”.
Compensation for claimants is likely to be in the hundreds, not thousands, of pounds.
Latest from FCA – 3 December 2025
Pause on motor finance complaints handling to lift on 31 May 2026
@thecomplainingcow How to climb the car Finance compensation #FCA #CarFinance #Compensation #moneytoks #CompensationClaim
Latest from the FCA – 7 April 2026
FCA announces details of the financial redress scheme and how to claim
Further help with complaining effectively about other car, money and other sector issues
All you need to know – car purchasing, financing, insurance & garages
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