car finance supreme court ruling 2025

Supreme Court Clarifies Car Finance Ruling — What UK Drivers Need to Know

In a landmark decision affecting millions of UK motorists, the Supreme Court has ruled on key aspects of car finance agreements — clarifying when consumers may be entitled to compensation for unfair or undisclosed commission charges. While the ruling narrows the scope of large-scale claims, it still opens the door for fair redress in specific cases.

What the Ruling Means for Drivers

The judgment focuses on the three-way relationship between the buyer, the dealer, and the finance company, determining who carries responsibility for ensuring the deal was transparent and fair. The Court upheld one of three sample cases — confirming that where a dealer misrepresented or failed to disclose commissions, consumers may be eligible for compensation.

While this decision does not signal a PPI-style mass payout, it lays the foundation for a case-by-case review of potentially unfair motor finance agreements. The Financial Conduct Authority (FCA) is now designing a national compensation scheme to handle such claims efficiently.

Background: The FCA’s Role and Next Steps

The FCA acts as the UK’s financial regulator under the Financial Services and Markets Act 2000. Following the Supreme Court’s decision, it announced a compensation framework that could distribute up to £8.2 billion among an estimated 14 million affected car buyers. Payments are expected to average around £700 per claimant.

The regulator aims to make the process simple and direct, avoiding the need for consumers to use Claims Management Companies that charge high fees for handling cases. The FCA has already taken enforcement action against over 200 such companies for exaggerated claims and misleading advertising.

When Commission Becomes ‘Unfair’

The FCA identifies three main situations that could count as unfair commission:

• When the consumer wasn’t informed that the broker or lender could adjust the interest rate on the loan.
• When the commission rate was excessive, typically more than 35% of the credit cost or 10% of the loan value.
• When the broker misrepresented access to multiple lenders while actually working exclusively with one provider.

In the upheld case (Mr Johnson), the dealer implied the finance option was selected from a range of competitive offers, when in reality only one provider was used, and the commission was significantly higher than reasonable.

How to Check If You’re Affected

If you believe you were not informed about commissions or discretionary rates in your car finance agreement, you can raise a complaint directly with your lender. The FCA provides a free template letter on its website to help you begin this process.

You do not need to involve third-party claims companies. If your complaint has already been acknowledged, no further action is required until the scheme formally launches. If you haven’t received a reply within eight weeks, follow up with the lender directly.

How Much Could You Receive?

The FCA expects most payouts to be in the region of £700. While smaller than early estimates, this amount is based on extensive analysis to ensure the process is both fair and efficient. Claimants with unusual or high-value cases can still choose to pursue independent legal action, though legal costs may outweigh potential gains.

Conclusion

The Supreme Court ruling marks a turning point in the UK’s motor finance landscape — prioritising transparency, fairness, and accountability. With the FCA now steering a comprehensive redress scheme, consumers can expect a structured and reliable path to compensation without the risk of unnecessary legal or agency fees. While every case will be judged individually, the decision signals a broader push toward restoring trust in the car finance sector.