The Supreme Court has ruled on a long-running dispute over car finance, with millions of drivers potentially in line for compensation. They’ve been urged to make a simple check
Car finance has emerged as one of the UK’s largest consumer disputes since the PPI scandal, with millions of motorists potentially overpaying on loans agreed before 2021. The controversy revolves around commissions, which are fees paid by lenders to brokers or car dealers for arranging finance.
Prior to January 2021, some lenders permitted dealers to alter the interest rate on a loan. The higher the rate, the more commission the broker earned.
This arrangement, known as a discretionary commission arrangement (DCA), provided brokers with a clear incentive to ramp up rates. Consequently, numerous drivers were left out of pocket, with some instances involving overcharges of hundreds of pounds throughout their agreement.
The Financial Conduct Authority outlawed DCAs in 2021, but millions of older agreements could still be impacted. This is why car finance compensation has become such a contentious issue. Now, this long-standing dispute has escalated to the highest level of the courts.
A pivotal Supreme Court decision has limited the scope for consumers seeking compensation but, importantly, it also affirmed that some agreements remain unfair, leaving the door ajar for future claims. The ruling has restricted the scope for consumers seeking compensation over car finance agreements, but millions may still be eligible to claim.
The case revolved around whether commission payments in certain car finance deals created an “unfair relationship” between lenders and customers. Ben Snape, CEO at Claim.co.uk, a leading claim assessment and referral service, clarified: “The judges have made it clear that commission alone isn’t automatically unfair, and simply arranging finance through a broker doesn’t make the deal unfair either.
“That’s a big shift from the earlier assumption that almost all agreements could be eligible.” However, the court’s ruling in Johnson vs. Firstrand caused a stir by determining that a 55% undisclosed commission did create an unfair relationship.
In this instance, the lender was required to repay the commission plus interest. James Reed, of Reed & Co Solicitors, noted: “What’s key is that the agreement didn’t need to involve a discretionary commission arrangement (DCA) to be found unfair.
“The problem was the sheer size of the commission and the fact that it was hidden from the customer.” The pool of potential claims has now shrunk, but remains substantial.
The Guardian recently reported that up to 14.6 million customers could qualify, with potential payouts totalling up to £18bn. According to Ben Snape: “If your agreement was under a DCA model, where brokers could set their own commission rates, your chances of a successful claim are much higher.”
James Reed added: “Even without a DCA, claims are possible if the commission was excessive and undisclosed. The Johnson case is proof that lenders can still be held accountable in those situations.”
However, agreements with lenders that never operated a DCA are now far less likely to be eligible.
What’s your next step?
If you purchased a car on finance before 2021:
- Find your agreement – check which lender you used.
- Research the lender’s commission model – did they use a DCA, or could excessive commission be involved?
- Seek legal guidance – an independent solicitor or claims service can advise on whether your circumstances fit the court’s criteria. You can also make these claims for free without the use of a claims management company, either directly to the lender, or via the Financial Ombudsman Service.
In essence, fewer agreements now qualify for compensation, but the potential payouts for those that do remain substantial. The Financial Conduct Authority (FCA) intends to establish a scheme to compensate motor finance customers who were treated unfairly, without them having to battle it out in court.
The consultation is set to kick off in October 2025, with the goal of finalising the scheme next year and initiating payouts in 2026.
