Supreme Court rules on car finance – so who will get compensation?

The Supreme Court has grabbed headlines recently by overturning a decision by the Court of Appeal about car finance.

In a nutshell, the Supreme Court ruled that car dealers don’t have a fiduciary duty to customers and that finance companies had not ‘bribed’ car dealers.

This reversed two decisions by the Court of Appeal that some estimated could have cost the industry up to £44bn. So far-reaching was the earlier Court of Appeal ruling, it risked leading to compensation on the scale of the PPI scandal.

However, it was only a partial win for car finance firms. A third ruling by the Court of Appeal, relating to an unfair relationship between lender and customer under the Consumer Credit Act, was upheld.

This car finance deal, for a Suzuki Swift purchased in 2017, was a discretionary commission arrangement, or DCA. These were banned by the FCA in 2021.

A key reason for this case being upheld was the sheer size of the commission. It represented 55% of the total charge for credit. The exact nature of the commission was also not disclosed and nor was a commercial tie between dealer and lender.

While the customer admitted they didn’t read the loan documents, the Supreme Court deemed them "commercially unsophisticated" and questioned to what extent a lender could reasonably expect a customer to have read and understood such documents.

Who will get compensation – and how much?

Finance regulator the FCA was quick to react to the Supreme Court decision. Just days later, it announced it plans to publish consultation on what a redress scheme could look like. This will run for six weeks in October 2025.

The aim is for people to get payouts in 2026.

Surprisingly, the FCA even estimated the average compensation people are likely to receive. It said that most individuals will probably receive less than £950 in compensation per agreement.

However, the number of people likely to receive compensation could be far lower than originally thought. Who will get compensation now hinges on what’s decided in the FCA consultation.

The FCA will continue investigations into DCAs during the consultation. These were outlawed in 2021. It will also look at fixed commission deals where the commission is deemed "excessive" and therefore unfair.

Potentially, the redress scheme could go right back to 2007, although those in the industry have been quick to point out verifying such claims could be tricky – few will have kept paperwork dating back up to 18 years.

The FCA will also decide whether the scheme is opt-in or opt-out.

As we wait for the consultation, the FCA adds that there is no need for anyone to use a claims management company – particularly if it is an ‘opt out’ scheme, as this will send payments to all affected customers automatically.

The FCA said: "We acted quickly to provide clarity following the Supreme Court’s judgment. Many motor finance firms were not complying with rules or the law, which is why we’ll consult on a compensation scheme.

"Our aim is to ensure the integrity of the motor finance market so it works well for consumers now and in the future. We’ll consult widely on how any scheme should work."

Regulator warns about car finance scam calls

In light of the Supreme Court ruling, the FCA has issued a new warning about scammers posing as car finance lenders.

Apparently, they are calling people and offering them fake compensation in exchange for personal details such as their name, address, date of birth and bank information.

The regulator stresses again that no compensation scheme is currently in place and car finance lenders are not yet contacting customers about compensation.

"Anyone who receives such a call should hang up immediately," says FCA Director of Special projects Nisha Arora.