The Financial Conduct Authority (FCA) is consulting on a motor finance compensation scheme which could amount to a total cost of between £9 billion and £18 billion in compensation, with the first payments anticipated in 2026.
There may well be a knock-on effect regarding the availability and cost of finance as well as residual values if it becomes more difficult for used car buyers to access finance, following the Supreme Court’s judgement on car loan commission which was announced at the start of the month.
The Supreme Court originally heard the case in April 2025 when car finance firms Close Brothers and Motonovo appealed against the surprise Court of Appeal ruling, made in October 2024, that all car finance agreements with hidden commission were unlawful.
The Court of Appeal at the time upheld claims by 3 customers against 2 lenders on the following grounds:
(i) assisting a breach of fiduciary duty by the dealers
(ii) bribing the dealers
(iii) an unfair relationship (in one case)
The Supreme Court’s Judgement on 1st August upheld the appeals on breach of fiduciary duty and bribery, finding in favour of the lenders but dismissed the appeal on an unfair relationship, finding in favour of the claimant.
Are funders and brokers affected?
Funders and brokers will need to assess the extent to which their relationships may give rise to fiduciary duties to customers in the specific context of their own business models and whether they may also be susceptible to claims of unfair relationships to the extent applicable to their agreements, taking into account a complex variety of factors.
They'll need to consider whether they have complied with regulatory requirements in the FCA Handbook regarding the disclosure of commission (set out in CONC). Importantly, while the Supreme Court decision in relation to unfair relationships is confined to ‘credit agreements’ within scope of s.140A CCA, the Supreme Court considered compliance with regulatory requirements to be one of the relevant factors and concluded that there had been a breach of CONC 4.5.3R, which has broader implications for firms within the consumer hire market.
Funders and brokers are impacted in so far as the principles dictated in the judgment must be assessed against their own contractual arrangements, control frameworks and risk tolerances.
What started the commission disclosure row?
The commission disclosure litigation all started with individual car finance complaints. In 2021, the Financial Conduct Authority (FCA) banned deals in which the dealer received a commission from the lender, based on the interest rate charged to the customer. These were known as discretionary commission arrangements (DCAs). The FCA said they provided an incentive for a dealer to charge a buyer a higher-than-necessary interest rate.
While early investigations were related to DCAs, the Court of Appeal then, crucially, widened the scope to any car finance commissions and this investigation, alongside test cases like Johnson v Firstrand Bank and Hopcraft v Close Brothers, led to the Court of Appeal's ruling on the matter and ultimately the recent Supreme Court ruling.
View full details of the ruling here.