UK Supreme Court Limits Car Finance Claims as FCA Considers Compensation Scheme

The UK Supreme Court recently issued a mixed ruling on claims related to hidden commissions paid by lenders to car dealers in motor finance deals, significantly limiting the scope for mass compensation claims but leaving some avenues open. While the court rejected two out of three test cases, it upheld one claim where the commission was deemed high enough to create an unfair relationship, emphasizing the importance of disclosure and consumer consent. The Financial Conduct Authority (FCA) is now considering setting up a compensation scheme targeting cases where undisclosed or high commissions influenced the cost of credit, with potential payouts estimated between £9 billion and £18 billion. This ruling provides legal clarity but also introduces uncertainty in the market, as some consumers may still be entitled to compensation if their loans involved undisclosed discretionary commissions prior to the 2021 ban. Industry stakeholders including the FCA and the National Franchised Dealers Association are awaiting further regulatory guidance, with the FCA expected to announce plans for a redress scheme soon. Despite the partial win for lenders, the case underscores ongoing concerns about transparency and fairness in car finance agreements and signals continued scrutiny of dealer-lender relationships.