Supreme Court ruling blocks car finance payouts for millions of consumers

Millions of car buyers who were hoping for compensation over mis-sold motor finance have been denied redress following a significant ruling by the UK Supreme Court, in a partial victory for lenders that reins in what could have been a multibillion-pound scandal.

The decision overturns core elements of a 2023 Court of Appeal judgment that had favoured consumers in cases against lenders MotoNovo and Close Brothers, which analysts warned could expose the industry to up to £44 billion in compensation liabilities—rivalled only by the historic PPI scandal.

While the ruling curbs the legal precedent that consumer rights groups hoped to rely on, it does not spell the end of potential payouts. The Financial Conduct Authority (FCA) is continuing its own wide-ranging investigation into discretionary commission arrangements on at least 14.6 million car finance deals struck between 2007 and 2021.

The FCA is expected to announce its next steps within six weeks of the Supreme Court’s decision.

At the heart of the issue are “secret” or undisclosed commissions paid by lenders to car dealerships for arranging finance. Under so-called discretionary commission arrangements, dealers were allowed to set interest rates on loans—earning more commission the higher the rate, which critics say incentivised inflated borrowing costs for consumers.

These practices were banned by the FCA in January 2021 due to the clear conflict of interest. However, between 2007 and 2020, around 25.9 million car finance agreements were made—14.6 million of which involved discretionary commissions worth an estimated £8.1 billion.

The FCA’s intervention in early 2023 prompted a surge in complaints from affected borrowers, alongside a rise in claims management firms and legal teams offering to pursue compensation.

In October 2023, the Court of Appeal found that car dealers—acting as credit brokers—owed a fiduciary duty to their customers and ruled that undisclosed commissions could render finance agreements unfair and invalid. The judgment applied not only to discretionary commissions but also all forms of commission where transparency was lacking.

The decision sparked alarm across the financial services sector, raising concerns that the ruling could affect other industries with similar brokered commission models, such as insurance and energy.

Both MotoNovo and Close Brothers appealed to the Supreme Court, which reviewed the cases in April 2024. On Friday, the court overturned some of the most far-reaching elements of the earlier ruling—delivering a reprieve for lenders and limiting the likelihood of widespread litigation.

However, the court did uphold one of the original cases, specifically relating to partial commission disclosures—leaving the door open for more narrowly framed complaints to succeed.

Despite the Supreme Court’s decision, the FCA remains the central player in determining whether the motor finance industry will be forced to pay compensation.

The regulator is conducting a comprehensive review of historic car finance deals involving discretionary commissions and has previously signalled that an industry-wide redress scheme is likely. The FCA said it would issue a statement within six weeks outlining its response.

The government, concerned by the potential knock-on effects of mass compensation payouts on the UK’s financial sector, had earlier considered intervening in the legal process. With the Supreme Court now ruling in favour of lenders, the pressure on ministers to legislate may temporarily ease.

However, campaigners have warned that justice for affected consumers should not be swept aside.

While Friday’s ruling narrows the legal path for consumers to claim in court, it does not prevent regulatory action—and all eyes are now on the FCA’s next move.

What does the car finance ruling mean for consumers?

The issue centres on undisclosed commissions paid by lenders to car dealers for arranging finance deals. Under discretionary commission arrangements (used from 2007 to 2021), dealers could set interest rates and earn more commission by charging higher rates—often without telling the customer.

Why were consumers expecting compensation?

In 2023, the Court of Appeal ruled that dealers owed customers a fiduciary duty, meaning they should act in the borrower’s best interest. It also found that any commission not disclosed could make the loan unfair—potentially entitling millions of people to compensation.

What did the Supreme Court decide?

On Friday, the Supreme Court overturned the fiduciary duty finding and limited the scope of the previous ruling—meaning millions of potential claims based on that legal precedent will now fail. However, one case was upheld, suggesting some narrower claims may still succeed.

Does this mean compensation is off the table?

Not entirely. The Financial Conduct Authority (FCA) is still investigating 14.6 million finance deals involving discretionary commissions. It is expected to announce within six weeks whether it will order an industry-wide compensation scheme.

What should affected car buyers do now?

• Wait for the FCA’s update on possible redress.
• Check your finance agreement: If you had a loan between 2007 and 2021 arranged by a dealership, especially with high interest rates, you may have been affected.
• Avoid unregulated claims firms and seek advice from trusted sources like the FCA, Citizens Advice, or regulated law firms.

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Supreme Court ruling blocks car finance payouts for millions of consumers