By Joan Gibbs( UK)
In a landmark ruling on Friday, the UK Supreme Court delivered a significant win for lenders involved in the ongoing car finance scandal, overturning a key Court of Appeal decision and substantially limiting the scale of potential customer compensation.
The case revolved around hidden commissions paid to car dealers by lenders, often without borrowers’ knowledge. While campaigners had hoped the court would uphold the earlier ruling deeming such payments unlawful, the Supreme Court sided with the lenders in two out of three test cases, dashing prospects of payouts potentially reaching £44 billion—an amount that would have rivalled the infamous PPI scandal.
“This ruling will disappoint many consumers who felt misled,” said consumer rights advocate and MoneySavingExpert founder Martin Lewis. “But it’s not the end of the road for those affected by discretionary commission arrangements.”
Discretionary commission arrangements (DCAs)—where car dealers could increase customer interest rates to earn higher commissions—were banned by the Financial Conduct Authority (FCA) in 2021. Prior to the ban, roughly 40% of car finance deals included these controversial arrangements.
While the Supreme Court ruling narrows the scope of legal liability for lenders, the FCA is still set to intervene. The regulator will announce its position on Monday, August 4, and is expected to open consultations within six weeks on a possible redress scheme, with potential compensation estimated between £5 billion and £15 billion.
An FCA spokesperson stated, “We are committed to ensuring fair treatment for consumers. We will assess the Supreme Court judgment thoroughly and work to clarify how drivers affected by DCAs may be compensated.”
In anticipation of compensation claims, major lenders like Lloyds Banking Group and Close Brothers have already set aside over £2 billion in provisions. Industry experts suggest this figure could increase as the FCA finalises its plans.
Martin Lewis urged car owners to act swiftly: “If you took out a car finance agreement before January 2021, especially if your dealer arranged the finance, you should consider complaining now to protect your place in line for potential compensation.”
Although the Supreme Court decision reduces the likelihood of mass payouts, consumers who were impacted by inflated interest rates under DCAs may still have a path to redress, albeit more limited than originally anticipated.
The FCA’s upcoming actions could determine just how much, and how quickly, affected drivers can claim.
