Car finance scandal: Supreme Court hearing could halve number of claimants

The number of people able to claim over secret car finance commission arrangements could effectively be halved, after the UK’s highest court agreed to hear an appeal from loan providers following a landmark case which laid the groundwork for potentially billions of pounds in payouts.

In October, the UK’s Court of Appeal ruled that all commissions must be fully disclosed to the consumer before a finance contract can be entered. This effectively makes Discretionary Commission Arrangements (DCAs) – which were banned three years ago, and saw lenders paying car dealers commission without the knowledge or consent of the buyer – illegal in the first instance, alongside any type of finance involving undisclosed commission.

As such, anyone having signed up to such an agreement in recent memory could be entitled to compensation, but don’t expect a cheque in the post anytime soon. A ruling from the Financial Conduct Authority means firms don’t have to respond to claims for compensation over any type of undisclosed commission until after December 2025.

That decision is based on the FCA’s expectation that the October ruling will significantly increase the number of claims firms will be forced to deal with, and also suggests the FCA believes the appeal will fail. In a statement, the FCA says it has written to the court asking it to determine the substantive appeal as soon as possible, and the regulator also says it “plans to apply to formally intervene in the case to share our expertise to assist the Court”.  

The challenge comes from two firms involved in the Court of Appeal’s test cases – Close Brothers Ltd and Firstrand Bank Ltd. If the appeal is successful, it could see only those affected by DCAs eligible to make a claim. The proceedings will be overseen by the president of the Supreme Court, Lord Robert Reed, and are expected to take place sometime between January and April 2025.

The decision has seen some lenders’ stock prices jump in anticipation of fewer claims; Lloyds Banking Group, which owns the UK’s biggest loan provider, Black Horse, saw its shares rise by as much as four per cent following the announcement. 

Adrian Dally, director of motor finance at the Finance and Leasing Association, praised the court’s decision as “very good news indeed”. Dally explained: “The expedited process will give the motor finance sector the certainty it needs.”

Speaking recently on ITV’s Martin Lewis Money Show, CEO of the Financial Conduct Authority Nikhil Rathi, said the establishment of an official redress scheme is now “more likely than when we started”. 

This would force lenders to pay almost all car finance customers damages, with the total sum for payouts potentially reaching as much as £30 billion.

Such a sum has recently prompted the FCA’s general counsel, Stephen Braviner Roman, to compare the debacle to the Payment Protection Insurance (PPI) scandal of the 2010s, which saw more than £38 billion paid out to consumers. Speaking to the Treasury Select Committee, he remarked that “it would be premature to say it’s definitely not the scale of PPI now”.

Thinking about buying a new car? Click here for our guide on how to buy a car online...