In a ruling that’s reshaping the UK’s car finance landscape, the Supreme Court has sided with lenders in a landmark case — sparing them from a potential £44 billion compensation bill over undisclosed commission payments. The decision overturns a previous Court of Appeal judgment that had opened the door to mass redress claims, with millions of motorists hoping for payouts linked to mis-sold finance deals.
While one claimant, Marcus Johnson, was awarded compensation due to unfair treatment, the broader legal precedent has been shut down. The ruling offers relief to banks, but scrutiny from regulators like the FCA is far from over.
Landmark Ruling Shakes Up Car Finance Landscape
In a decision that’s sent shockwaves through the financial and automotive sectors, the UK Supreme Court has ruled in favour of lenders in a high-profile case concerning car finance commissions — sparing them from a potential £44 billion compensation bill. The ruling, delivered late on Friday afternoon, overturned a previous Court of Appeal judgment that had found lenders liable for undisclosed commission payments made to car dealers, says Politico.
The case centred on whether banks and finance companies breached fiduciary duties by allowing dealers to earn commission — often linked to inflated interest rates — without informing customers. While one claimant, Marcus Johnson, was awarded compensation due to specific unfair treatment, the court dismissed broader claims, stating that lenders and dealers were not obligated to act in the customer’s best interest.
What Was At Stake?
The original Court of Appeal ruling had opened the door for millions of motorists to seek redress for alleged car finance mis-selling. Analysts warned that if upheld, the decision could have triggered payouts rivaling the infamous PPI scandal — with estimates reaching £44 billion, according to Business Matters.
Banks including Lloyds, Santander, and Close Brothers had already set aside billions in anticipation of potential claims. The Supreme Court’s reversal now means those provisions may be scaled back, offering a major sigh of relief across the City of London, says This Is Money.
The Case That Changed Everything
Three consumers brought forward claims, arguing they were misled by dealers acting as credit brokers who failed to disclose commission arrangements. The court found that in two of the cases, the relationships were lawful and did not breach consumer protection rules. However, in Johnson’s case, the court ruled that the relationship was unfair due to the size of the commission and misleading documentation.
Lord Reed, delivering the judgment, stated: “Each party acted in its own interest and was not expected to show loyalty to the customer.” This effectively dismantled the argument that dealers owed a fiduciary duty to borrowers.
FCA Still Watching Closely
Despite the ruling, the Financial Conduct Authority (FCA) is pressing ahead with its investigation into historic car finance deals. According to STV News, the regulator has confirmed it will consult on a redress scheme covering discretionary commission arrangements — where dealers set interest rates to boost their own earnings.
The FCA estimates that between 2007 and 2021, over 14.6 million finance agreements involved such commissions, potentially costing consumers billions. While the Supreme Court has narrowed the legal path for claims, the FCA’s review could still result in payouts ranging from £9 billion to £18 billion.
What This Means For Consumers
For most motorists, the ruling means mass compensation is off the table — but not entirely. Those who believe they were mis-sold car finance due to undisclosed or excessive commissions may still have a case under the Consumer Credit Act, especially if the relationship was demonstrably unfair.
Consumer experts, including Martin Lewis, advise drivers to avoid claim management firms and instead wait for the FCA’s formal guidance. “The scheme will be simple to join,” Lewis said, “and signing up with a CMC could cost you up to 30% of any payout”.
Final Thoughts
The Supreme Court’s ruling has brought clarity — and relief — to lenders, but the car finance saga is far from over. With the FCA poised to act and one successful claim already on record, the door remains ajar for consumers who were genuinely misled. For now, the industry breathes easier, but the spotlight on commission practices isn’t fading anytime soon.
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