Lenders triumph over car financing deals in Supreme Court ruling, leaving millions without compensation
In a significant development for millions of car owners, the Financial Conduct Authority (FCA) has announced that it will decide by Monday, 4 August, whether to consult on an industry-wide redress scheme for consumers with car loans[1]. This decision comes after the Supreme Court's ruling on the car finance scandal, known as 'PPI on wheels', which has been a source of contention for over a decade.
The Supreme Court's ruling, handed down in early August 2025, sided with major lenders, deciding that they are not liable for hidden commission payments made to car dealers without customers’ fully informed consent[2]. This ruling significantly limits the scope of compensation claims, as most claims for compensation will not proceed. However, the expected compensation cost to lenders has been reduced from a potential £45 billion to between £5 billion and £15 billion[2].
Despite this, the FCA is still likely to propose a redress scheme to compensate affected customers without requiring individual complaints. This scheme would provide compensation based on FCA guidance rather than individual lawsuits, potentially helping consumers who paid undisclosed commissions[4]. The FCA and Treasury are working to understand how the ruling impacts both firms and consumers, with the Treasury pursuing regulatory reforms to create a fairer credit market[2].
The car finance scandal involves commission payments made to brokers and dealers behind the scenes by lenders for signing buyers up to car finance deals. It is estimated that motorists may have paid £165million a year in unnecessary fees due to these commission payments[3]. The FCA has been investigating these discretionary commission agreements (DCAs) since January 2024[5].
The majority of new cars are bought via car finance deals, where drivers can pay an upfront deposit for their car, borrow the rest from a lender, and pay back the loan each month. In some cases, brokers secured higher interest rates on the loans in return for higher commission, which in turn meant higher payments for motorists[3].
Martin Lewis CBE, consumer campaigner and founder of Money Saving Expert, advised drivers not to sign up with a claims firm in the wake of the Supreme Court's decision[3]. However, some drivers could still receive payouts through a redress scheme from the FCA[6]. The FCA will analyze the judgment and determine their next steps, confirming whether they will consult on a redress scheme before markets open on Monday[5].
The ruling comes as a major relief to car finance lenders as they have narrowly avoided stumping up potentially billions of pounds. However, the FCA's redress scheme, if implemented, could still provide meaningful compensation to affected motorists.
References: 1. BBC News 2. The Guardian 3. The Telegraph 4. FT 5. City A.M. 6. Money Saving Expert
- The FCA's decision, expected by Monday, 4 August, could lead to a consultation on an industry-wide redress scheme for car loan customers, potentially compensating those affected by undisclosed commission payments in the car finance industry.
- Courts have ruled that major lenders are not liable for hidden commission payments made to car dealers without customers’ fully informed consent, significantly limiting the scope of compensation claims.
- The financial industry, including personal finance, banking and insurance, has been under scrutiny following the car finance scandal, with the FCA investigating discretionary commission agreements (DCAs) since January 2024.
- Investing in general news outlets like BBC News, The Guardian, The Telegraph, FT, City A.M., and Money Saving Expert can help individuals stay informed about ongoing scandals and regulatory changes within the finance and business sectors, such as the car finance scandal and the FCA's redress scheme.
- Politics and regulatory reforms, such as those pursued by the Treasury, play a crucial role in creating a fairer credit market and addressing contention-ridden issues like the car finance scandal, which has persisted for over a decade.
- Crimes related to finance, such as obtaining money through deception or concealing information, have come to light in the car finance scandal, demonstrating the need for enhanced regulation and transparency within the industry.
