Car Finance Payout Row: What It Means for UK Drivers

Millions of UK motorists have been blocked from claiming compensation for hidden commissions paid on car loans following a Supreme Court ruling.

The court sided with finance companies in two out of three crucial test cases, focusing on commission payments made by banks and other credit providers to car dealers.

The decision reversed earlier rulings by the Court of Appeal that had opened the possibility of industry-wide claims for compensation from motorists.

Some could still be in line for payouts.

However, questions remain about who or how many will be eligible.

What is the Scandal?

Most new cars, and many second-hand vehicles, are purchased through finance agreements.

Around two million cars are sold this way each year. Buyers typically pay a deposit and monthly instalments, including interest.

In 2021, the Financial Conduct Authority (FCA) banned discretionary commission arrangements (DCAs). These allowed dealers to earn more commission if customers were charged higher interest rates.

The FCA argued that this practice left customers paying more than necessary.

Since January, the regulator has been weighing up whether to compensate drivers who took out such loans before the 2021 ban.

The Supreme Court reviewed three test cases to decide if hidden commissions amounted to bribery and whether car dealers had a duty to act in customers’ interests.

If upheld, the ruling could have allowed millions to claim. Instead, the court backed finance firms in two of the three cases, sharply narrowing the potential for mass compensation.

Who Could Still be in Line for Payouts?

Some motorists may still receive compensation, depending on their loan terms and what they knew about their interest rates.

Anyone who took out a finance deal with a DCA before January 28, 2021, could qualify. If approved, the FCA would oversee a central scheme and contact affected customers directly.

The regulator has warned against using third-party claims companies, which often take a percentage of any payout.

Under the potential scheme, firms would be required to identify affected customers and automatically provide redress.

However, compensation will now be far less extensive than initially expected.

The FCA said any scheme must be fair to consumers without destabilising the car finance market.

It will confirm on August 4 whether it plans to “consult on a redress scheme”.

The FCA said: “Our aims remain to ensure that consumers are fairly compensated and that the motor finance market works well.”

How Much Could They Receive?

Exact figures remain unclear, but lenders, including major banks, have already set aside billions for potential payouts.

Compensation would likely equal the difference between the interest paid and what should have been charged, plus 8% interest on the overpayment.

Amounts will vary based on individual circumstances.

Lenders have already allocated significant sums:

• Lloyds Bank: £1.15 billion
• Santander: £295 million
• Close Brothers: £165 million
• Northridge Finance: £143 million
• MotoNovo (FirstRand): £140 million

Some of this money is reserved for legal and administrative costs.

The FCA stressed that any redress scheme must balance fairness with market stability.

When Could a Compensation Scheme Begin?

The FCA will announce on August 4, 2025, whether a scheme will go ahead.

Even if approved, it will take months to determine which DCAs were unfair and which were not.

Nikhil Rathi, the FCA’s chief executive, said:

“We’re looking at those arrangements that were in place at the time, before 2021, to see what may have been unfair.”

“And if we feel that consumers have lost out, we will make sure that we consult on a scheme and move quickly.”

He confirmed that the consultation will involve consumer groups, Parliament and “everybody who has an interest,” with a scheme likely to launch next year.

In 2024, the Court of Appeal’s ruling created the potential for billions in payouts by widening the scope of claims beyond DCAs.

The Supreme Court decision has now reversed that momentum, leaving only those with pre-2021 DCA loans as potential claimants.

The final decision on these payouts lies with the FCA.

Martin Lewis, founder of Money Saving Expert, said he would be “gobsmacked” if there was not a scheme for DCA payments.