Drivers across the UK denied car finance compensation following Supreme Court ruling

The case focused on whether dealers had a duty to act in the interests of car buyers when selling a vehicle on a car finance contract. 

This reverses the decision made by the Court of Appeal over the possibility of widespread claims and will result in reduced capabilities to seek compensation. 

The Supreme Court has reviewed three cases as part of a joint appeal filed by two lenders – FirstRand Bank and Close Brothers. 

The appeal challenged the decision which deemed it unlawful for car dealers to receive undisclosed commissions from lenders when arranging motor finance agreements prior to 2021. 

This pivotal ruling could have opened the door for millions of motorists to claim compensation, depending on how their car loan interest rates were determined.  

It would have also exposed lenders to potential liabilities amounting to billions of pounds. 

Instead, it narrows the scope for large-scale compensation claims and raises questions about ‘discretionary commission deals, where dealers were paid more for pushing loans with higher interest rates.  

• EV leasing explained – all you need to know 
• Car finance – should you use it for your next purchase? 
• Buying a used car – the ultimate checklist 

Despite the ruling, the Financial Conduct Authority (FCA) is looking at setting up a compensation scheme. 

The FCA wants clarity for consumers and the wider industry. 

Nikhil Rathi, Chief Executive of the FCA, said: “It is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated.  

“We also want to ensure that the market, relied on by millions each year, can continue to work well so consumers get a fair deal. 

“Our aim is a compensation scheme that’s fair and easy to participate in, so there’s no need to use a claims management company or law firm. If you do, it will cost you a significant chunk of any money you get. 

“It will take time to establish a scheme, but we hope to start getting people any money they are owed next year.” 

Although many motor finance customers may not be eligible for compensation, the Supreme Court found that in specific cases, failing to properly disclose commission arrangements could be considered unfair and therefore unlawful. 

The FCA’s new rules will aim to ensure lenders assess compensation claims in a consistent, efficient, and fair manner. The FCA will also oversee firms’ compliance with these rules and take action against those that fail to meet the required standards.