CAR FINANCE COMPENSATION

The Supreme Court has ruled that millions of motorists will not be able to claim compensation for hidden commissions on car finance deals, overturning earlier Court of Appeal decisions that had raised hopes of a windfall on a scale bigger than the PPI scandal.

The Court reviewed three cases and sided with lenders in two cases, stating that non-disclosure of commission payments alone does not make a finance agreement unfair under the Consumer Credit Act. However, in the third case – Johnson -v- FirstRand Bank Limited (trading as MotoNovo Finance) – the Court ruled against the lender. It said: “Mr Johnson’s 55% interest rate and misleading documentation meant he could not have given fully informed consent.”

This case sets an important precedent under Section 140A of the Consumer Credit Act, confirming that agreements may still be considered unfair even where no discretionary commission was paid.

Although the Supreme Court ruling narrows the scope for compensation, it doesn’t shut the door entirely. Some customers may still qualify, especially in cases involving particularly high interest rates or where customers were clearly misled.

The law allows unfairness to be addressed with complaints under the Consumer Credit Act and through a central redress mechanism via the FCA.

Financial Conduct Authority (FCA) to Launch Compensation Scheme

Separately, the Financial Conduct Authority (FCA) has announced plans to launch a redress scheme for consumers who were mis-sold car finance deals through Discretionary Commission Arrangements (DCAs), where car dealers could increase the interest rate to earn higher commission without telling you.

This model, which created a clear conflict of interest, was banned in January 2021. However, it’s estimated that about 40 per cent of all car deals before that date involved DCAs. The FCA review confirms that many firms breached regulatory standards.

It plans a compensation scheme covering car loans dating back to 2007, including both discretionary and some non-discretionary commission cases depending on the circumstances (as clarified by the Supreme Court in the Johnson case).

The non-discretionary commission arrangements finance deals could be as recent as last year.

This is because the Supreme Court decision in the Johnson case, which did not include the payment of any discretionary commission, makes clear that non-disclosure of other facts relating to the commission can make the relationship unfair.

The consultation will begin in October 2025, with compensation payouts expected to begin in 2026.

The potential bill could be £9bn or more, but it’s likely most individuals will receive less than £950 in compensation for each eligible claim.

What should you do?

If you think you are affected:

• Contact your lender and submit a complaint – that’s all you need to do.
• If you have already submitted a claim – do nothing else.
• Don’t use a Claims Management Company – they can take up to 30% of your refund for doing nothing.

The FCA has confirmed that if your complaint qualifies, compensation will be paid automatically.