Car finance mis-selling case: what it could mean for customers
April 02, 2025 by Siobhan Doyle
Car changing is a big deal
A car finance dispute being heard at the Supreme Court this week could lead to payouts for thousands who were mis-sold car finance. Here’s what you need to know.
At a three-day hearing that began yesterday (1 April) in the UK’s highest court, two lenders, Close Brothers and FirstRand Bank (MotoNovo), are appealing a Court of Appeal ruling issued in October 2024.
The ruling stated that a car finance broker can’t legally receive a commission from the lender without first getting the customer’s full, informed consent.
Experts believe this ruling could lead to compensation claims of up to £30bn, with hundreds of thousands of car buyers likely to seek refunds on commission fees. Lawyers representing them could also stand to earn millions.
This case targets hidden car finance mis-selling
The Financial Conduct Authority are looking at two-types of car finance mis-selling:
Discretionary Commission Arrangements (DCAs)
This isn’t directly part of the Supreme Court case, but it affects about 40% of car finance deals. It’s when brokers or dealers raised the interest rates on Personal Contract Purchase (PCP) and Hire Purchase agreements (up until 2021) to earn higher commissions, without telling customers.
The FCA has confirmed it will set up a scheme to address this. This would mean lenders would have to contact borrowers and offer them a set payout. However, we’re yet to know the final details of what qualifies for compensation, which will depend on the Supreme Court’s ruling.
Commission Disclosure Complaints
This is the focus of the Supreme Court case. It’s based on the Court of Appeal ruling that if car finance agreements didn’t tell you the amount of commission that was being paid, then the agreement was unlawful. This applies to nearly all car finance deals, including those involving DCAs.
What could happen next?
We are yet to know what the court will say, but MoneySavingExpert founder, Martin Lewis, has given three broad scenarios.
The most likely outcome is that the Supreme Court will overturn the Court of Appeal’s ruling on Commission Disclosure Complaints. If this happens, a redress scheme will be set up only for DCA complaints, with payouts possibly ranging from the low billions to £10bn, depending on the amount per person. After the ruling, the FCA will announce its next steps within six weeks and begin working on the redress scheme and payout timeline.
But if the Supreme Court upholds the Court of Appeal’s ruling, the FCA would create a redress scheme for nearly all car finance agreements, potentially leading to payouts in the tens of billions, similar to Payment Protection Insurance (PPI) compensation. The government may also introduce new legislation to address the issue.
The least likely outcome is that the Supreme Court might rule out the Commission Disclosure Complaints entirely, which could lead the regulator to reconsider whether DCA complaints are valid. If that happens, there might be no redress at all.
Is it still worth putting in a complaint?
The FCA plans to have lenders reach out to people directly, so there’s less need to rush. However, there’s no harm in filing a complaint so that companies can help identify who’s been affected, especially if you’ve moved or changed contact details.
If you choose to make a complaint, be sure to use a free tool – such as a reclaim car finance guide – to avoid losing a large amount of your compensation to a claims firm.
There will likely still be a compensation scheme
Even if judges side with car finance providers, lenders still face a hefty compensation bill. This is because the FCA has banned discretionary commission arrangements (DCAs), where dealers got higher commissions for higher loan interest rates, which meant customers paid more than necessary.
The FCA is considering a compensation scheme for drivers with these deals before the 2021 ban, though some are already seeking compensation through the courts.
Major lenders have already begun setting aside funds for potential payouts. For example, Lloyds Banking Group has allocated £1.2bn to cover potential compensation related to car finance mis-selling.
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