Car Finance Scandal Triggers Industry Shake

A Scandal That Could Reshape the Car Finance Industry

A long-running row over hidden commissions on car loans has reached a major turning point after the UK Supreme Court sided with finance companies in two out of three landmark test cases. The outcome has sharply reduced the number of potential compensation claims, but the Financial Conduct Authority (FCA) is still moving forward with plans for a redress scheme targeting the most serious breaches.

The decision has major implications for motorists, lenders, and the future of vehicle financing in Britain.

What Was the Car Loan Scandal About?

• The scandal centres around Discretionary Commission Arrangements (DCAs)—agreements that gave car dealers financial incentives to charge customers higher interest rates.
• These DCAs were banned by the FCA in 2021, after it found the structure unfair to consumers.
• Customers were rarely informed about these commissions, many of which significantly increased the total cost of a car loan.
• The FCA has been reviewing whether compensation should be paid to people affected before the ban.

Supreme Court Ruling: What Happened?

On 2 August, the Supreme Court ruled in favour of finance companies in two of three key test cases, narrowing the scope of potential claims.

• Only one case—Marcus Johnson’s, who unknowingly paid 25% commission on a 2017 loan—was upheld. The court deemed the arrangement unfair and misleading.
• The other cases were dismissed, effectively blocking millions of generalised claims.
• However, the judgment left the door open to compensation for cases involving exceptionally high or undisclosed commissions.

What Happens Next?

• The FCA has announced it will consult in October on a formal compensation scheme.
• Initial estimates suggest eligible customers could receive up to £950 per deal, with first payouts likely to begin in 2026.
• The total compensation bill could reach £9–18 billion, though only specific high-commission cases will qualify.
• Lenders will shoulder the full cost, including legal and admin expenses.

Already, major players have set aside funds:

• Lloyds Bank: £1.15 billion
• Santander: £295 million
• Close Brothers: £165 million
• Northridge Finance: £143 million
• MotoNovo (FirstRand): £140 million