The Supreme Court Speaks: Car Finance Ruling Explained
The much-anticipated car finance ruling finally landed on August 1st 2025, and it is a big one. The UK Supreme Court has ruled that car dealers are not acting as “agents” for buyers when arranging finance. In other words, dealers do not owe customers the same fiduciary loyalty as a solicitor would. Instead, dealers are recognised as having their own commercial interests, namely selling cars and earning commission.
That may sound like good news for dealers and lenders, but there is still a sting in the tail. The Court upheld one consumer case, Johnson v FirstRand Bank (MotoNovo), where the sheer size of the commission (55 per cent of the total credit cost) and lack of transparency created an “unfair relationship” under the Consumer Credit Act 1974. Johnson was awarded compensation covering the commission (£1,650.95) plus interest.
Why the Motor Finance Commission Was in the Spotlight
At the heart of the motor finance commission debate was whether these payments were effectively hidden “bribes”. The Supreme Court firmly rejected that idea. Lord Reed clarified:
“The payment of the commission was not a bribe… the car dealers plainly and properly had a personal interest in the dealings.”
So while commissions are not unlawful, they must be fair and properly disclosed. This distinction is crucial because it stops the floodgates of “bribery” claims, but leaves the door open for car finance compensation where unfair terms are proven.
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What the Car Finance Court Ruling Means for Dealers and Lenders
For the motor trade, Friday’s judgment was a sigh of relief. Billions of pounds in potential mass claims were avoided. Sue Robinson, CEO of the NFDA, called it “really positive news for the industry”, noting that dealerships already operate under heavy regulation.
Yet, lenders and banks are not out of the woods. The FCA redress scheme for unfair motor finance commissions is now moving forward. Early estimates suggest lenders could face a £12–15 billion bill in compensation, while they have only set aside around £2 billion so far. As Adrian Dally of the Finance & Leasing Association put it:
“We just can’t fathom where the FCA’s got its numbers from.”
The shortfall is striking, and history (remember PPI?) suggests the final bill could balloon over time.
Car Finance Compensation Scheme 2025: What Consumers Need to Know
So, what does this mean for drivers? The FCA will soon announce how its car finance compensation scheme 2025 will work. Early signs point to compensation payouts beginning as soon as next year, with consumers potentially reclaiming unfairly high commissions on loans dating back as far as 2007.
But the details matter. The total cost hinges on whether the scheme is opt-in (where consumers must actively claim) or opt-out (automatic unless declined). Opt-out schemes usually lead to far higher volumes of payouts.
Either way, if you have taken out car finance in the past 15 years, it is worth keeping an eye on the FCA’s announcements.
How Much Will Car Finance Compensation Cost UK Banks?
Analysts are split. The FCA says £12–15 billion. Lloyds has only provisioned £1.15 billion. Moody’s warns of “credit negative” impacts, while others believe the figures are overstated.
What is certain is that the UK motor finance industry, which funds over 80 per cent of new car sales, faces years of scrutiny, claims, and regulatory reform. Just like PPI, this could be a long road.
Final Thoughts
The Supreme Court car finance case has drawn a line under one legal uncertainty, dealers are not agents for buyers, but opened another: just how large the redress bill will be. For consumers, this ruling could mean getting their money back. For lenders, it means sleepless nights. And for dealers, it means business continues, but with even more emphasis on transparency.
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