Updated: 7 August 2025

Originally Published: 4 August 2025

The UK’s highest court has given its long-awaited judgement in the car finance scandal which could have major implications for millions of motorists. The Supreme Court decision will lead to a fresh wave of investigations into historic commission deals between car dealers and lenders. As attention shifts to how people involved in mis-sold agreements might be compensated, both legal experts and the financial watchdog are calling this a critical moment in the battle for consumer fairness.

The Two Key Ways Car Finance May Have Been Mis-Sold

As the FCA and legal system move forward with plans for compensation, it’s important to understand that not all car finance claims fall under one category. In fact, there are two key types of mis-selling currently under scrutiny. These will influence whether or not you may be eligible for a payout, either through direct complaint or via the proposed FCA redress scheme.

1. Discretionary Commission Arrangements (DCAs)

This is the most prominent type and the main focus of the FCA’s proposed redress scheme. Under DCAs, lenders allowed dealers to set the interest rate on finance agreements, knowing they would earn a higher commission by charging customers more. This created a conflict of interest that was not always disclosed to the customer.

If your car finance deal, typically a PCP or HP agreement, was agreed before 28 January 2021, there’s a strong chance it involved a DCA. You may have paid more than necessary without knowing why. This type of mis-selling is seen as systemic and is the reason the FCA is considering mass redress.

2. Unfair Relationship Claims

This category is more specific and harder to prove. These claims focus on whether the overall terms of the finance agreement created an "unfair relationship" between the lender and the consumer, as defined under the Consumer Credit Act.

These are not necessarily tied to DCAs and may involve other forms of hidden commissions or contract terms that disproportionately benefited the lender. The Supreme Court’s ruling on Marcus Johnson’s case falls into this category. His agreement was deemed unfair due to a high, undisclosed commission that significantly inflated the interest rate.

While this second type of claim isn’t the primary focus of the upcoming redress scheme, it remains a viable path for individual legal action, especially where consumers were significantly overcharged without any transparency.

Supreme Court Ruling: A Partial Win for Consumers

On 1 August 2025, the Supreme Court issued a ruling  [1] that will shape how these claims are handled moving forward. Of the three test cases, just one, which was brought by a claimant called Marcus Johnson, was successful.

The court ruled in Johnson's case that the interest rate had been inflated by the hidden commissions, making the deal unfair under the Consumer Credit Act. It dismissed wider arguments on fiduciary duty and also bribery charges, ruling that the car dealers are not agents of the consumers for the purposes of the sales. This limits the scope for legal action, but strengthens the argument that some of the agreements were unfair when the commission was hidden. It places greater emphasis on regulators and the industry to act, especially in cases where commissions were excessive and undisclosed.

FCA Redress Scheme: A Formal Consultation Is Coming

Following growing public pressure and the Supreme Court ruling, the Financial Conduct Authority (FCA) has said that it will consult in early October 2025 [2] on whether to implement a formal scheme, and for it to be open for 6 weeks. 

According to the FCA, lenders may be liable to repay between £9 billion and £18 billion [3], depending on how many finance deals are ultimately deemed unfair. A midpoint estimate of £13.5 billion is considered most likely. The scheme would cover both upheld complaints and unresolved ones that relate to agreements signed before 28 January 2021.

This redress scheme will probably begin making payments in 2026 and will likely focus on PCP and HP deals that were sold using a discretionary commission model.

What Action Should Customers Take Now?

If you think you may be one of the affected customers, there are a number of ways you can start the process. The FCA has told customers to start by making a complaint with their lender as this is still the quickest and most transparent method of resolution.

However, the process can be complex, especially for consumers unfamiliar with financial agreements or legal terminology. Others may choose to use the services of a claims management company (CMC). Many of these companies will act on a “no win, no fee” basis but they will usually take a proportion of any award.

Should you decide to go down this route, make sure you select an FCA-regulated firm which has experience in dealing with PCP claims. Reclaim247 has a team of specialists who are known for their transparency and effective communication. They will advise you as to what to expect and how to make sure your claim is dealt with professionally. When you partner with Reclaim247, you can rest assured that you'll receive dedicated and professional support that's tailored to your specific situation. 

Who Is Eligible to Make a Claim?

The proposed compensation scheme will likely apply to individuals who entered into PCP or HP agreements before the DCA ban came into force on 28 January 2021. In particular, it would be aimed at contracts where there was a high undisclosed commission or inflated interest rate that may have been adjusted to the benefit of the dealer.

If you believe you were misled or not informed about commissions that affected the cost of your car finance deal, you may be eligible for compensation. While each case will be reviewed on its own merits, thousands of consumers could receive an average compensation of £950 per eligible agreement [4], with higher sums possible in cases similar to the Marcus Johnson ruling.

You can find detailed information about eligibility and how to begin your claim on trusted guides.

Industry Impact: Lenders Under Pressure

The lenders have been feeling the effects of the ruling and anticipated FCA action. Lloyds Banking Group, one of the biggest providers of motor finance in the UK, has restated its £1.2 billion [5] provision to cover compensation but cautioned that overall costs could increase, hinging on the FCA’s final determination.

Meanwhile, Close Brothers saw its shares rise by 27% [6] following the Supreme Court’s decision, reflecting relief among investors that broader fiduciary liability had been rejected. However, some analysts say the actual costs will ultimately depend on how wide-ranging and granular the FCA’s redress scheme ends up being.

Consumer Guidance from a Finance Expert

A renowned consumer finance expert has again stepped in to support motorists. He emphasised that consumers who feel wronged should be proactive in seeking redress. He urged affected parties not to delay and to make direct complaints where possible before the scheme takes effect. Consumer finance experts [7] also warn against scams and unregulated firms capitalising on the situation, and say people should never pay fees upfront. 

Brief Timeline of the UK Car Finance Scandal

• Jan 2021 - FCA bans Discretionary Commission Arrangements (DCAs), the practice where dealers could inflate interest rates to earn more commission on PCP and HP deals
• Jan 2024 - FCA launches formal investigation into DCAs affecting deals from 2007–2021; over 2.5 million complaints submitted
• Oct 2024 - Court of Appeal rules that undisclosed commissions without fully informed consent are unlawful, potentially exposing lenders to up to £44 billion in claims
• Dec 2024 - FCA renews its moratorium on complaint handling. Firms don't need to respond to non-DCA commission complaints received from 26 Oct 2024 to 4 Dec 2025
• Mar 2025 - FCA confirms plans to consult on compensation scheme within six weeks of Supreme Court decision
• Apr  2025 - Supreme Court hears lenders’ appeal against the Court of Appeal’s judgment
• 1 Aug  2025 - Supreme Court delivers judgement: overturns two of three appeal court findings, upholds just one, which is the Marcus Johnson’s unfair commission case
• 3 Aug  2025 - FCA announces redress consultation to begin by early October, estimating costs between £9 bn and £18 bn; payouts likely starting in 2026
• 4 Aug  2025 - Lenders such as Lloyds and Close Brothers confirm provisions and review liabilities; share prices react positively to legal clarity

Final Thoughts

The Supreme Court ruling has reduced the legal options available to claimants but has sped up regulation and defined the responsibilities of lenders and dealers. In most cases the route to redress will be through the FCA’s proposed redress scheme rather than the courts.

If you think you were mis-sold car finance, it is best to act sooner rather than later. Whether pursuing claims on car finance deals independently or through a reputable adviser, the message is clear: help is coming, but preparation is key.

You can start exploring your eligibility or make a complaint via reputable platforms like car finance claims.

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1. 1 August 2025 Supreme Court Ruling - https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf  
2. Financial Conduct Authority consultation - https://www.fca.org.uk/news/statements/fca-consult-compensation-scheme-motor-finance-customers
3. Motor finance compensation - https://www.fca.org.uk/news/press-releases/fca-consult-motor-finance-compensation-scheme 
4. £950 average car finance refund - https://www.birminghammail.co.uk/motoring/motoring-news/14-million-drivers-could-receive-32193839 
5. £1.2 billion Lloyds Banking Group provision - https://www.reuters.com/business/finance/lloyds-keeps-motor-finance-provision-under-review-after-supreme-court-ruling-2025-08-04/ 
6. 27% rise in Close Brothers shares - https://www.investments.halifax.co.uk/research-centre/news-centre/article/ 
7. Consumer finance experts - https://www.moneysavingexpert.com/news/2025/07/martin-lewis-supreme-court-car-finance-commission/