Millions of drivers have been following the car finance scandal, hoping they might be in line for a payout. A new Supreme Court ruling has made it harder for most people to claim, but billions in compensation is still potentially on the table.
So, what does this mean for motorists? Here’s a breakdown of the judgment, what happens next, and who could still be in line for compensation.
What is the car finance scandal about?
For years, millions of people in the UK bought cars on finance through deals like Personal Contract Purchase (PCP) or Hire Purchase. On the surface, the agreements looked straightforward. But behind the scenes, many included hidden or excess commissions.
As these practices came to light, complaints flooded in.
In 2024, the Court of Appeal ruled that failing to disclose commission could make a finance agreement unlawful – opening the door to potentially billions in claims. But lenders fought back, and the case went all the way to the Supreme Court.
What did the Supreme Court decide?
On 1 August 2025, the UK’s highest court gave its verdict on three major test cases. The big question? Did hidden commissions make these finance deals unfair?
Here’s what happened:
- Two out of three cases were dismissed, reversing the previous Court of Appeal judgment that had paved the way for widespread claims.
- One case was upheld: Marcus Johnson won his claim because his dealer had pocketed a commission worth a staggering 55% of the total credit charge – and hadn’t been upfront about it. The court called this a “powerful indication” that the agreement was unfair.
Lord Reed, who delivered the judgment, said hiding a commission alone doesn’t make a deal unlawful. Dealers don’t have to put customers’ interests first. But if the commission was very high and poorly explained, that could still create an “unfair relationship”.
So, while the Supreme Court decision shuts the door on many claims, it doesn’t close it completely.
Two types of mis-selling: what’s the difference?
The car finance scandal actually involves two separate issues.
Commission disclosure complaints
These claims argued that finance deals were unlawful if customers weren’t fully told about commission payments. At one point, the Court of Appeal ruling made it look like almost every borrower could claim, and if that had been the case, we could have been looking at something on a similar scale to the payment protection insurance (PPI) scandal.
But after the Supreme Court decision, that’s no longer the case. Today, only agreements with very high commissions or clear unfairness might still qualify.
However, the Supreme Court judgment only applied to disclosure complaints. Discretionary Commission Arrangement cases remain unaffected.
Discretionary Commission Arrangements (DCAs)
This is the big one. Under DCAs, dealers could tweak the interest rate on your finance deal to boost their own commission. In other words, the higher the rate you paid, the more money they made – and you’d never know. DCAs were used in around 40% of car finance deals before 2021.
How it worked
- Finance agreement: If you bought a car using finance, the car dealer arranged a loan from a lender.
- Commission structure: The dealer received a commission from the lender for arranging the loan.
- Setting interest rates: The dealer could raise your interest rate to increase their commission. The result? You paid more and they earned more.
The Financial Conduct Authority (FCA) banned DCAs in 2021, and has said this practice broke its rules. That’s why DCA claims are still very much alive, even after the Supreme Court ruling.
What’s next?
The FCA has confirmed it will launch a consultation by October 2025 on how a compensation scheme should work. This will run for six weeks, and if all goes to plan, payouts could start in 2026.
Key points the FCA is considering:
- Which agreements to include: Most Discretionary Commission Arrangements will be included, and possibly some other cases where commissions were excessive – even if they weren’t discretionary.
- How far back will it go? The scheme is expected to apply to agreements going back as far as 2007.
- How will payouts be calculated: For DCAs, redress could be the difference between what you paid and the lowest rate you could have got. For excessive fixed commissions, it may be the full amount of commission.
- Will there be interest on payouts: The FCA says interest is likely to be added at about 3% per year.
The regulator has promised to keep the process free, fair and straightforward. And you won’t need to use a claims management company or a law firm to make a claim.
So, could you be due car finance compensation?
According to the FCA and the Supreme Court, several factors could make a deal unlawful and make you eligible for compensation.
- How big was the commission? If the commission was very high compared to the total charge for credit, this could point to unfairness.
- Was the commission discretionary? Deals where dealers could increase your interest rate to boost their own commission are a key focus of the FCA’s planned redress scheme.
- Who was the customer? The characteristics of the borrower matter. For example, the court noted that if a consumer is “commercially unsophisticated” they may be more vulnerable to unfair terms.
- Did the lender follow the rules? Compliance with FCA regulations is crucial. Breaches, such as failing to disclose significant commission, could make an agreement unlawful.
- How was the commission explained? The extent – and manner – of disclosure matters. If key details were hidden or downplayed, that strengthens the case for redress.
How much money are we talking about?
Early estimates of £44 billion are now off the table. The FCA predicts the total will be between £9 billion and £18 billion, with most payouts likely under £950. Some could be higher, especially if the full commission is refunded with interest.
“My best guess is payouts could total around £10 billion.”
What should drivers do now
The FCA says if you’ve already complained, you don’t need to do anything for now. If you haven’t, you should complain to your finance provider.
In summary
Despite the Supreme Court ruling, the FCA’s planned scheme means millions of people who took out car finance before 2021 – particularly those with DCA agreements – could still be owed money. And with the eligibility period stretching back to 2007, the impact will be huge.
The car finance scandal isn’t over – and for millions of drivers, the story is just entering a new stage.
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