The UK Supreme Court is preparing to deliver a highly anticipated ruling in a case that could see millions of drivers eligible for compensation over undisclosed commissions in car finance agreements. The hearing comes in the wake of a unanimous Court of Appeal judgment last year, which found that failure to inform customers about dealer commissions was unlawful.
At the heart of the case is a common practice in the motor finance industry: lenders paying car dealers a commission to secure loan agreements, often without informing the buyer. The ruling could affect the financial obligations of major banks and reshape transparency standards in UK consumer lending.
Court Ruling Challenges Long-Standing Industry Practices
The case stems from a 2023 judgment in which the Court of Appeal ruled that commission payments made to car dealers without the explicit, informed consent of customers were illegal.
According to the BBC, the case involved a group of claimants including Marcus Johnson from Cwmbran, whose 2017 car finance agreement included a £1,650 commission—equal to a quarter of the total loan amount—without his prior knowledge.
The judges concluded that such commissions must be disclosed clearly and not buried in standard loan terms. The ruling has led the Financial Conduct Authority (FCA) to advise consumers who suspect mis-selling to lodge complaints. Under FCA guidance, lenders must respond to such claims by December 2025, pending the Supreme Court’s final decision.
In response, finance providers have defended their actions, claiming they adhered to existing regulations. Industry representatives, such as Adrian Dally from the Finance and Leasing Association, argue that firms acted within the law as it stood at the time and are now seeking “permanent” clarity from the Supreme Court.
Financial Impact Could Rival Past Compensation Scandals
The potential implications of the case are significant. According to Consumer Voice, up to 40% of historical car finance agreements may have included discretionary commission arrangements (DCAs), where dealers earned more by charging borrowers higher interest rates.
Though DCAs were banned in 2021, many agreements prior to that remain under scrutiny.
The FCA has stated that it may introduce a formal compensation scheme following the ruling, potentially compelling lenders to proactively contact affected consumers. In preparation, major banks have begun allocating substantial reserves: Lloyds Banking Group has earmarked £1.2 billion, while Close Brothers has set aside £165 million, according to BBC reporting.
An earlier intervention from the UK Treasury warned that large-scale compensation payouts might damage market competitiveness and deter investment, but the Supreme Court dismissed the appeal to halt proceedings.
The final verdict, expected this summer, could have lasting effects not only on car finance but also across other commission-based financial products.
