Supreme Court rules on car finance: latest

In a significant judgment for the nine in 10 people buying new cars on finance the Supreme Court has seemingly ruled out a PPI-style compensation rush for drivers afraid they may have been over-charged on their monthly payments, except in very specific cases.
The ruling is complicated and full of carefully phrased legal nuance, but centres on what it describes as the three-way relationship between the person buying the car, the dealer supplying it and the finance company providing the credit, and on whom the responsibility lies for this being a fair deal. The exact implications will take a while to filter through but, in short, if you’re buying a car you’ll still be able to get finance and if you’re worried you might have been over-charged on a previous or existing car purchase the Financial Conduct Authority is now working on a scheme to figure out who might be owed compensation, how that will work and how much you may be owed. More on this below. It's complicated but we’ll break down the details below for a sense of how we got here and what happens next, with ongoing updates as more news comes in. Skip to: The latest news The Supreme Court’s July 2025 ruling explained Background: car finance and ‘hidden’ commission payments What is the FCA and what is it going to do? How you can raise a complaint and get a response How much compensation will I get if I had car finance with discretionary commission? Am I ok to buy a car on finance now? Will this change how vehicle finance works? Was there discretionary commission all types of vehicles or just cars?

Having consulted on a redress scheme the Financial Conduct Authority (FCA) has now shared details of how that might work, and the likely levels of compensation drivers could expect. It expects the consultation to conclude in November, the scheme to agreed by the beginning of 2026 and payments to be made from later in the year. To those ends it expects compensation will average around £700 oer claim, a little less than the £950 proposed previously but still welcome for those affected.
The FCA scheme would apply to loans taken out between April 2007 and November 2024, and could affect as many as 14 million car buyers. Given that scale the compensation scheme has been designed to be as simple and quick as possible. See below for more background but the compensation will apply to people who were not aware of one of three commission arrangements between the company lending the money and the broker (usually a car dealer) introducing them to the buyer. Compensation will be paid if the broker didn’t tell the customer the rate of interest could be varied (the discretionary commission arrangement or DCAs explained below), if the commission was unusually high or the broker implied they would shop around for the best deal but didn’t tell the customer they had an existing arrangement with a preferred lender. The FCA makes it clear those who think they may be entitled to compensation do not need to go through a claims management firm unless they wish to opt out of the scheme and pursue their claim through the courts. This runs the risk of extra costs, and most claimants will be best served by complaining directly to the lender using a templated letter available on the FCA website. If you’ve already complained you should hear back from the lender within a month of the scheme going live. If you haven’t submitted your complaint yet doing so now should help speed the process up once the scheme is in place. Overall the FCA expects payouts total in the region of £8.2bn. Back to top

The Supreme Court judgement focused on three consumers who argued that the car dealers, acting as brokers, failed to disclose commission payments and this affected the impartiality of the finance advice they gave. The Court of Appeal reviewed and the ruled in favour of the consumers while the more recent verdict from the Supreme Court upheld only one of the three claims.
Separately, the FCA is reviewing historical discretionary commission arrangements (DCAs) in motor finance, banned since 2021, to assess possible past misconduct and the need for compensation. Despite a similar subject, this is a different matter to that considered by the Supreme Court. The FCA anticipates hundreds of thousands of consumers may qualify for payouts, with most payments in the hundreds of pounds, not thousands. Since the Supreme Court ruling, the FCA has suggested there will be a significant number of consumers affected and due some sort of compensation, though this is likely to be ‘in the hundreds rather than thousands’ in terms of each payout. The Supreme Court judgement provides a basis on which claims can be judged on their merits, though it will be a case-by-case basis rather than a sweeping ‘class action’. Once again, the FCA has been clear in its advice to consumers not to take up the offers made by Claims Management Companies to act on their behalf, given there is still much to be decided, the FCA will manage the process and any third party involved will take a significant cut of any compensation you may be due. The FCA has already taken action against more than 200 such companies for making exaggerated compensation promises. Back to top

The legal battle began when three consumers brought claims against their motor finance lenders, arguing they had been mis-sold car finance because dealer commissions were not properly disclosed. All three initially lost their cases in the lower courts. However, on appeal, the Court of Appeal ruled in their favour, holding that undisclosed commissions could breach a broker’s fiduciary duty to the customer. This landmark decision prompted several finance companies to pause new lending while they reviewed their practices, before appealing the rulings to the UK Supreme Court for final determination.
The dispute stems from how much commission the dealer makes from selling the car in its role as a broker between the customer and the finance company. While there’s nothing inherently wrong with this rules have been tightened up after complaints from consumers who felt there was a lack of transparency for the fact dealers and finance companies were varying the commission payments to their benefit without customers being aware. These are the Discretionary Commission Arrangements (DCAs) that were outlawed in January 2021. This is where it gets a little confusing because the recent Supreme Court judgement was not about the DCA issue but, rather, individual complaints from three specific customers against finance companies they felt had treated them unfairly. The regulator the Financial Conduct Authority agreed and the Court of Appeal ruled in their favour, the finance companies in question appealed and this is what the Supreme Court ruled on, with two of the cases turned down and one upheld. This judgment will now form the basis for the FCA’s ongoing investigation and set the parameters for who may – or may not – be in line for compensation, how much that will be and how it will be awarded. Back to top

The Financial Conduct Authority (FCA) is a financial regulatory body and conduct regulator for financial services firms and markets in the UK. It is investigating the issue using powers under the Financial Services and Markets Act 2000.
Following the Supreme Court judgement the FCA has used the ruling to frame a compensation scheme that will see as much as £8.2bn distributed among the potential 14m or so car buyers affected. The scheme has been designed to be as easy and quick as possible, meaning claimants can avoid using claims management companies who would take a cut of any payout due. At the moment the FCA estimates most payouts should be in the region of £700. “Many motor finance lenders did not comply with the law or the rules. Now we have legal clarity, it’s time their customers get fair compensation,” says Nikhal Rathi of the FCA. “Our scheme aims to be simple for people to use and lenders to implement. We recognise that there will be a wide range of views on the scheme, its scope, timeframe and how compensation is calculated. On such a complex issue, not everyone will get everything they would like. But we want to work together on the best possible scheme and draw a line under this issue quickly. That certainty is vital, so a trusted motor finance market can continue to serve millions of families every year.” For the purposes of the scheme what counts as unfair? Well, in the case where the Supreme Court ruled in favour – that of Mr Johnson – it was judged the dealer had implied the finance package he’d been offered was one it had selected for him from a range of providers, based on it being the best value. In fact, the dealer was only working with a single provider and the commission was judged to be excessive, and Mr Johnson couldn’t reasonably have understood exactly what he was signing up to. More widely, the FCA has identified three situations where it considers commission to have been unfairly charged. These include where the consumer wasn’t aware the broker and lender could vary the interest rate on the loan, where the commission was excessive (35 per cent of the cost of the credit and 10 per cent of the loan) or when the consumer was unaware the broker had a preferred lender with which they had an existing arrangement. Back to top

Under its proposed scheme the FCA says if you think you weren’t told about commission arrangements on your car finance you should complain to the lender. You can do so with a templated letter available on its website if you haven’t already.
If you’ve done so and this has been acknowledged you don’t need to do anything but if it’s been longer than eight weeks you should chase them up. While the scheme hasn’t started yet you can still complain now and this may help speed the process up. If you haven’t complained when the scheme starts your lender should contact you anyway to have your case reviewed. Unless you plan to take your case to court there should be no need to involve a claims management company, given this may mean you end up getting less of the compensation owed. Back to top

The FCA expects most compensation payments to be within the region of £700 per claim. While this is a little less than had been suggested previously it says the scheme is the simplest and most efficient way to process the large number of potential cases and for all parties involved to draw a line under it.
If you feel your case merits further investigation you do, of course, have the option to pursue it through the courts and you may get more. But any gains may be wiped out by costs, or you could actually see your compensation reduced. In most cases the FCA advises the scheme is the fastest and fairest way to resolve a claim. Back to top

Car finance is still available while this investigation is ongoing.
You may find brokers (retailers) advise you that they will receive commission, but remember, this is a common and legal way for brokers to make a living and, while discretionary commission arrangements have been banned, the FCA’s ban doesn’t cover all types of commission. Under the new rules, the retailer (acting as a broker) must confirm you’re paying commission. You’re well within your rights to ask how commission affects the final amount you pay. Whenever you look at a finance plan, you should make sure you can afford the monthly repayments and that you read and understand the terms and conditions. Take your time to research the types of finance available, how much you’d have to pay and when by, plus what would happen if you fell behind with payments. Ask the retailer any questions you have, and don’t rush into a decision. Back to top

The implications of the Supreme Court ruling will take some time to digest but, broadly, it has seemingly decided that apart from in one specific case dealers and finance providers were acting lawfully. So, basically, it will be business as usual. You may, however, find you are provided with more information regarding any commission or payments retailers or brokers involved in vehicle finance receive in order to help you make an informed decision.
Speaking on behalf of lenders in his role as Director General of the Finance and Leasing Association, Stephen Haddrill told the BBC the ruling could end up making finance more complicated and therefore expensive for some consumers, especially those on lower incomes. How this shakes out remains to be seen. Back to top

This issue affects any circumstance where finance, through a broker or dealer, that has a discretionary commission arrangement included in the contract has been used to acquire vehicles such as cars, vans, camper vans and motorbikes between 2007 and 2021.
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