The Motor Finance Ruling and the FCA's Redress Scheme

On 1 August last year, the Supreme Court ruled on three linked cases about commission paid by car finance lenders to the dealers who arranged loans for their customers. Customers were often not told how much the dealer was being paid.

In 2024, the Court of Appeal had decided that dealers owed customers a duty of loyalty, so hidden commission could count as a bribe. That would have opened lenders up to huge claims. The Supreme Court disagreed. It said a car dealer is acting in its own commercial interest when it arranges finance, so it does not owe the customer that kind of duty.

However, one customer, Mr Johnson, still won. The court found that his relationship with the lender was unfair under the Consumer Credit Act 1974, because he paid a large commission that was not properly explained to him and he was not told the dealer had a business link with the lender. The lender had to pay the commission back with interest.

Soon after the ruling, the FCA announced a compensation scheme for car finance customers treated unfairly between 2007 and 2024. Its final rules, published in March, expect around £7.5 billion to be paid out. Parts of the scheme were paused earlier this month while legal challenges against it are heard.

Overall, the case shows how one court ruling can affect a whole industry, and how a regulator can step in to deal with millions of similar claims at once.