Updated: 7 August 2025
Originally Published: 30 June 2025
Summary: Car Finance Mis-Selling Developments Raise Fresh Questions for Lenders and Consumers
In an eagerly awaited judgement on 1 August 2025, the UK Supreme Court provided a ruling [1] which the majority had been hoping would unlock billions of pounds in claims compensation for mis-sold car finance agreements. However, the car finance compensation update presents challenges for the many millions of drivers.
Contrary to earlier interpretations, the Court stopped short of declaring that all discretionary commission arrangements (DCAs) were inherently unfair. While the ruling criticised opaque commission practices, it placed the burden on individual consumers to prove that brokers or dealers acted against their best interests or failed in their duty of disclosure.
It narrows the circumstances in which compensation will be made, and makes the process of claiming refunds more onerous. Customers may still have a claim, but the ruling will have changed expectations such that compensation will not be as broadly available or as simple as had been hoped.
The Supreme Court Ruling: What It Really Means for Consumers
At the centre of the ruling were appeals from Close Brothers and MotoNovo [2] over the legality of discretionary commission models used before 2021. Under these models, the dealer was able to increase the customer's rate of interest so as to earn a higher commission, without necessarily making this clear.
The Supreme Court accepted that brokers have a duty to act openly and honestly in particular when arranging finance. However, the Court decided that:
- Brokers do not breach this duty merely by earning commission unless they fail to properly disclose how it affects the deal.
- Generalised statements like “a commission may be paid” are often inadequate, but not automatically unlawful.
- Whether a consumer is eligible for redress must be determined on a case by case basis.
In summary, consumers will have to demonstrate a lack of disclosure in their individual agreement, rather than the fact of the commission model itself.
One Case Upheld: But What Does That Mean?
As part of its 1 August 2025 ruling, the UK Supreme Court considered three separate cases but upheld only one: that of Marcus Johnson. His case has now become a focal point for interpreting what the judgement means for millions of other motorists.
In Johnson’s case, the court found that the test of “unfairness” had been met. The South African lender FirstRand (trading as MotoNovo in the UK) had paid a significant, undisclosed commission to the car dealer. Importantly, Johnson’s contract documents did not disclose any commercial relationships between the lender and the dealer.
Although Johnson failed to read the documents he was given, the Court noted he was “commercially unsophisticated.” The judgement raised questions about whether a typical consumer, without financial training, could realistically be expected to uncover hidden ties or understand complex finance structures.
This ruling is significant because it shows that lack of disclosure alone may not be enough. What seems to have tipped the scales in Johnson’s favour was the combination of nondisclosure, a large commission payment, and his relative inexperience.
Legal commentators are now examining whether Johnson’s success sets a precedent. It suggests that others in similar positions, particularly if they weren’t clearly informed, and didn’t have the financial expertise to question the deal, could still have strong grounds to claim.
However, the fact that only one of three cases was upheld confirms that claims will depend heavily on individual circumstances and not all consumers will meet the threshold set by the court.
Redress Not Automatic: Claims Must Show Misconduct on a Case-by-Case Basis
This ruling has changed the landscape. While it doesn’t prevent claims entirely, it does mean:
- There will be no blanket car finance refund scheme applying to all customers.
- Each claim will require individual evidence that the broker breached their duty or acted unfairly.
- FCA is still committed to publishing guidance but it will be less likely to contain a one-size-fits-all redress scheme.
Legal experts now advise that while many claims may still succeed, each must demonstrate a “clear failure” in duty or disclosure. This will set a higher bar for affected consumers and may well delay the redress process for those affected by the car finance scandal overall.
Where next? Expect a response from FCA
The FCA has confirmed that it will proceed with a consultation in early October 2025 [3] on whether to implement a formal scheme, and for it to be open for 6 weeks, despite the Supreme Court ruling. However, the content of the guidance is likely to be different to provide for the narrower scope for redress identified by the Court.
Key points:
- The pause on complaint decisions remains in place until 4 December 2025.
- Consumers are still encouraged to submit claims now, but decisions may be delayed.
- The redress process may change to include more stringent eligibility requirements and assessment on a case-by-case basis if it does go live.
Who Is Still Eligible to Claim?
You could still be entitled to compensation if:
- You entered into a PCP or Hire Purchase agreement at any time from 2007 to 28 January 2021.
- Your broker or dealer did not clearly disclose that a commission would be paid, or failed to explain their discretion in setting your interest rate.
- You were not given a chance to understand how your rate was calculated, or if it was inflated for profit.
Don’t have the paperwork (or the car)? Your lender’s own records could be used to evidence your claim.
How Much Compensation Could I Receive?
While blanket refunds are now off the table, successful individual claims could still include:
- Repayment of excess interest caused by inflated rates.
- Repayment of the broker commission (if it is found to be unfair).
- Statutory interest on any refund.
- A possible discount/write off of any outstanding balance.
The claims involving the PCP finance scandal can be for several hundred pounds up to several thousand pounds depending on how the deal was done and how disclosure was (or was not) made. According to reports, the average compensation payout is expected to be £950 [4], though individual amounts will vary based on the specifics of each agreement.
What Should You Do Now?
It’s now more important than ever to act promptly and document your claim thoroughly.
Why act now?
- Your complaint will be logged and dated, ensuring it is part of the review process.
- You will be one of the firsts claimants whose concerns will be processed when the FCA gives its guidance, or a partial redress scheme is set up.
- Some lenders may still settle cases early, especially where disclosure failures are obvious.
Different Ways to File a Car Finance Mis-Selling Claim
If you believe your car finance agreement was mis-sold, there are several ways to pursue a complaint depending on your level of comfort, resources, and time:
- DIY (Do-It-Yourself) Complaints - Many consumers choose to file complaints on their own by contacting their lender directly. The FCA encourages this approach and offers consumer guidance on its website. You can also find free complaint letter templates from organisations like the Financial Ombudsman Service (FOS), Citizens Advice, MoneySavingExpert, or consumer rights groups.
- Using a Claims Management Company (CMC) - A popular option for those who prefer expert assistance. Reputable CMCs like Reclaim247 handle the process end-to-end, including reviewing your finance agreement, gathering supporting evidence, and drafting the complaint. They operate on a No Win, No Fee basis.
- Hiring a Solicitor - For more complex cases, particularly where large sums or legal technicalities are involved, you may consider hiring a solicitor with experience in consumer credit law. This route can offer high-level support but may involve upfront legal fees unless a conditional fee arrangement is in place.
Each option has pros and cons. While DIY methods are free and straightforward for simple cases, regulated professionals can add value where commission structures were buried deep in complex agreements or where there’s pushback from the lender.
Can You Still Use a Claims Management Company?
Yes. In fact, the new complexity of the claims process makes the support of a regulated Claims Management Company (CMC) more valuable.
A reputable CMC can:
- Scrutinise your finance deal to flag up any warning signs.
- Prepare a robust, evidence-based case which is in line with the SC’s criteria.
- Deal with all the correspondence with lenders on your behalf.
- Operate on a No Win, No Fee basis.
⚠️ Watch out for cold callers and unregulated firms. Only use FCA-authorised firms that provide transparent terms and fair pricing.
Timeline of Key Events
- 2007–2021: Use of DCAs widespread in UK car finance
- 28 Jan 2021: FCA bans discretionary commission arrangements
- Oct 2024: Court of Appeal supports consumer challenge
- Apr 2025: Supreme Court hears final appeals
- 1 Aug 2025: Supreme Court ruling limits scope of automatic redress
- Early Oct 2025: As of Aug 4, the FCA announced that it will consult in early October 2025 on whether to implement a formal scheme, and for it to be open for 6 weeks.
- 4 Dec 2025: FCA’s pause on complaint decisions set to end
- Early 2026 (est.): Redress outcomes, if applicable, may begin
Should You Still Start a Claim?
Absolutely. While the route to compensation may now be more complicated, valid claims from this widespread car finance scandal still exist, especially where clear failures in disclosure or unfair practices can be shown.
Some consumers have also expressed concern about whether there is a car finance claims deadline they need to meet. No deadline has been set for complaints but it is suggested that you submit your complaint as soon as possible.
By submitting now:
- You secure your place in any future process.
- It gives your claim the best chance of early resolution.
- You can still be eligible if the FCA set up a targeted redress route.
The power of finance industry experts’ insights has brought the matter to the forefront of the news. They played a significant role in encouraging consumers to look into the matter and see if they are entitled to a refund. As a result of their campaigning, many more people are deciding to make claims.
If you believe your finance deal involved unfair or hidden commissions, it’s not too late. Despite the narrower path ahead, compensation is still possible with the right support and a well-documented claim.
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- 1 August 2025, the UK Supreme Court provided a ruling - https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf
- appeals from Close Brothers and MotoNovo - https://www.reuters.com/world/uk/uk-supreme-court-overturns-ruling-motor-finance-commissions-win-banks-2025-08-01/
- FCA consultation in early October 2025 - https://www.fca.org.uk/news/statements/fca-consult-compensation-scheme-motor-finance-customers
- average compensation payout is expected to be £950 - https://www.birminghammail.co.uk/motoring/motoring-news/14-million-drivers-could-receive-32193839