9:12 am, August 1, 2025
The Supreme Court is today expected to publish its long-waited judgment in relation to the car finance commission saga but how significant could a ruling either way prove to be?
It is hoped that the court’s decision will bring clarity over how the law should be applied to motor finance arrangements following the Court of Appeal’s landmark decision against Close Brothers and FirstRand Bank last October.
However, the ruling is set to have much wider ramifications than just the motor trade, with the financial services sector also waiting with bated breath for the decision.
Any finding against lenders could spark chaos and leave millions of motorists due compensation as a result.
With that in mind, we have taken a look at how the court’s decision could impact on consumers, lenders, and the wider car finance market.
What is the background to the court case?
The Supreme Court – the UK’s highest court – is considering an appeal against a Court of Appeal ruling made in October last year, relating to three claimants who had each bought cars on credit.
In each case, the car dealer made a profit on the sale of the car but also received a commission from the lender for introducing the business to them, which the three claimants – Marcus Johnson, Andrew Wrench and Amy Hopcraft – argued they did not know about.
The Court of Appeal found that ‘secret’ commission payments, as part of finance arrangements made before 2021 without the motorist’s fully informed consent, were unlawful.
The lenders, FirstRand Bank and Close Brothers, challenged that decision in over three days of submissions to the Supreme Court earlier this year.
Why is this case so important?
Wayne Gibbard, who leads the automotive finance practice at law firm Shoosmiths, said today’s Supreme Court decision will be ‘absolutely fundamental to what happens next’ for the sector.
He said it will inform the scale of potential compensation for customers, which will be overseen by the Financial Conduct Authority (FCA).
The FCA previously said that, if it thinks there was widespread harm to consumers as a result of commission payments, then it could set up an industry-wide redress scheme.
It said it will confirm within six weeks of the Supreme Court judgment whether it is planning to launch such a scheme, amid talk the crisis. could end rivalling the PPI scandal
Gibbard stressed that this response will be particularly important going forward.
He said: ‘People can make an informed decision – the query is around their harm, have they been mis-sold something?
‘And I think that’s been absent in the conversation.’
What does it mean for consumers?
If Supreme Court judges side with the claimants then it could mean that many people who took out a car loan before 2021 may be due a payout, although precise numbers remain unclear.
If it sides with the lenders, then it is likely to significantly limit the scope of potential payouts to motorists.
However, the FCA is still looking at compensation for potential mis-selling of some types of motor finance arrangements – known as discretionary commission arrangements (DCAs) – so this could go ahead regardless.
After news of the scandal broke, consumer champion Martin Lewis launched a car finance complaint tool, which received more than one million enquiries in its first month alone.
What about dealers?
This remains the million dollar question. Will dealers be left to fit the bill for any of this?
In short, nobody knows for sure, but several franchised dealer groups are said to have made provisions, should they be roped into contributing to any redress scheme.
In the weeks that followed the original Court of Appeal decision, retailers were forced to change the way they sold finance, with Norton Way Motors boss Jason Cranswick admitting that ‘ re-education’ was needed for sales staff.
Those comments came at this year’s Car Dealer Live conference in March, where Swansway boss Peter Smyth also admitted that his dealer group was making preparations for a worst case scenario where the Supreme Court rules against lenders.
Despite this, Greenhous Group’s Danny Minshall, did say he expects the court to support the automotive industry.
‘I think it will support the industry,’ he said, when asked which way the coin would fall. ‘The FCA are doing their bit to help and support us as dealers.
‘I think it’s something that blew over quite quickly. It was a knee jerk but we still sell finance, customers are happy a commission.
‘It’s no different to your mortgage application and actually it wasn’t dealers fault that these commissions were not declared but it all seems to fall back on us though!’
Who could be entitled to compensation?
If the FCA decides to proceed with a redress scheme, it is likely to clarify what type of motor finance arrangements it applies to – and potentially include all deals where people were not told clearly enough, or at all, that the car dealer was receiving commission.
A scheme is intended to be simpler for consumers than making a direct complaint to providers.
The watchdog said it would expect ‘fewer consumers to rely on a claims management company, meaning they would keep all of any compensation they receive’ and would be ‘more orderly and efficient for firms than a complaint-led approach’.
Mahesh Vara, a legal director for Shoosmiths, said a decision that secret commission payments were unlawful would ‘naturally be a boon to claimants firms and consumers’.
‘I think this is one of the first large-scale consumer mis-selling “scandals” of the social media digital age,’ he said.
‘It’s now leading to a greater expectation of there being almost a guaranteed payment. That is what the FCA will have to consider.’
Adverts from claims management companies have sprung up significantly in the lead up to the court decision – but some regulators have been warning against using them as people may be charged for a service they ultimately do not need.
What could it mean for the wider industry?
About 80% of new cars are bought using motor finance in the UK – so the decision could have major consequences for the industry.
Gibbard said: ‘The FCA has got to make sure the market is stabilised – this is the second biggest credit market outside of mortgages.
‘This is more than provision of credit – this is people getting to work, taking somebody to hospital, taking the kids to the playground – so this is a real facilitator for the economy.
‘I think there is a risk, but everybody is so acutely aware of that risk so hopefully it won’t have that disruptive effect.’
Gibbard also said a decision could have ‘far-reaching consequences’ with other parts of the financial services sector also potentially coming under pressure for commission payments on loans.
