The United Kingdom’s Supreme Court delivered a highly anticipated verdict on August 1, 2025, reversing a previous landmark ruling concerning hidden commissions in the car finance industry. This judgment has wide-reaching implications for motorists, banks, and the UK financial sector, ending months of speculation about potential mass compensation claims.
Background
Over the past year, tens of thousands of UK drivers filed claims, arguing they were misled by car dealers and lenders about secret commission payments on car finance deals. The controversy centered on so-called discretionary commission arrangements (DCAs) — a practice where brokers or dealers could raise interest rates for buyers without full disclosure, earning higher commissions as a result. The Financial Conduct Authority (FCA) banned these arrangements in 2021, but the legal cases related to agreements made before the ban.
In October 2024, the UK Court of Appeal ruled that such undisclosed commission payments were unlawful, dramatically expanding the scope for compensation, and raising the possibility that banks and lenders could face payouts on a scale similar to the infamous PPI mis-selling scandal.
The Supreme Court Decision
Following appeals from major lenders including Close Brothers Limited and FirstRand Bank, the Supreme Court overturned the Court of Appeal’s ruling. The court found that car dealerships facilitating car loans did not owe customers a fiduciary duty — a standard of utmost good faith — in these arrangements. As a result, banks and lenders are not automatically liable for the so-called secret commissions paid before 2021.
According to Lord Reed, president of the Supreme Court, the lower court had misunderstood the financial interests of car dealers and the nature of the agreements. The court clarified that simply failing to disclose a commission does not, by itself, make the arrangement unlawful in most cases.
What It Means for Motorists and the Industry
- For banks and lenders: The decision relieves them from a potentially enormous compensation bill, restoring stability and confidence among UK financial institutions.
- For drivers: Most motorists with historical car finance agreements will no longer be eligible for automatic compensation for non-disclosure of commissions. However, the Supreme Court made an exception in a very specific case, awarding compensation to a claimant, Marcus Johnson, whose arrangement was explicitly found to be unfair.
- For the car finance industry: The ruling provides legal clarity and limits the risk of retrospective claims for agreements prior to the FCA’s 2021 ban on DCAs.
What Comes Next?
While this verdict significantly narrows the potential scope for mass compensation, the FCA continues to review past commission arrangements in a separate inquiry. Motorists whose cases involve specific unfair practices—not just non-disclosure—may still pursue compensation on an individual basis.
This Supreme Court judgment marks a decisive moment in the years-long car finance commission scandal, delivering relief to banks and reshaping expectations for consumer redress across the UK.
