Update: 4 August 2025

Originally Published: 1 August 2025

The FCA has specifically said it will consult in early October 2025 on whether to implement a formal scheme, and for it to be open for 6 weeks. This is a developing story. Follow Reclaim247 for the latest updates.

In a major development in the ongoing saga over the mis-selling of car finance, the UK Supreme Court has ruled in a way that favours lenders, narrowing the scope for compensation claims. While the long-anticipated ruling did not completely shut the door on payouts, it has substantially limited the scope, making it harder for consumers to succeed in most car finance claims unless clear signs of unfairness or wrongdoing can be established.

The decision is likely to reshape the future of how PCP claims and hidden commission complaints are handled across the motor finance industry. Facing continuing regulatory investigation, drivers affected have been encouraged to check their own contracts and understand where they stand.

A Turning Point for Car Finance Compensation

The central issue in the case was whether consumers were misled or harmed by car dealers and brokers who did not disclose the high level of commission embedded in their finance deals. For years, the Financial Conduct Authority (FCA) has investigated these practices, and thousands of complaints have been lodged by drivers who believe they were sold expensive agreements without fair or transparent terms.

However, the Supreme Court's judgement has drawn a new line in the sand. It ruled that redress should be awarded only where a "sufficiently serious" failure of duty or unfair treatment could be demonstrated. The result is that not all undisclosed commissions will necessarily lead to an automatic payout, a distinction that has been welcomed by some lenders who have contended that automatic payments were unwarranted.

But the decision may not be a good one for claimants. The door is not closed, but it is ajar, and it is narrower and more selective. Those with better evidence, and with more serious claims, are the only ones who will be likely to be able to obtain monetary relief, going forward, under existing interpretations.

What the Supreme Court Actually Decided

It decided that although many people probably did not know there were hidden commissions in their car finance deals, not every failure to disclose would have been a breach of duty or a consumer right.

More specifically the ruling was about how a consumer's expectations should be measured against a lender's responsibilities. If a person freely entered into the terms of a finance deal, and how the commission was structured had no bearing on the deal's terms or cost, then there is perhaps no obvious reason for a payment to be made.

This is an important distinction. It means that the more serious cases, where the brokers had an incentive to push a higher-cost deal, are likely to have success. The more run-of-the-mill cases where the terms were in line with market standards, are less likely to receive compensation.

The Johnson Case: One Win, But What Does It Mean?

Of the three car finance cases argued before the Supreme Court, only one was affirmed: the case of Marcus Johnson. Johnson's case was found to have particular circumstances that the Court saw as being unfair.

Johnson had taken out car finance with a South African lender operating in the UK under the name MotoNovo. The court found that MotoNovo paid a significant, undisclosed commission to the dealer who sold the vehicle, and crucially, the documents Johnson received gave no clear explanation of this commercial relationship.

What tipped the balance in Johnson’s favour was his lack of financial sophistication. The judges noted that although Johnson didn’t read the paperwork, he was “commercially unsophisticated,” and the lender could not reasonably expect him to fully grasp the nature of the commission arrangement.

The result suggests that the Supreme Court is prepared to uphold awards where the consumer can be demonstrated to have been unfairly prejudiced and to have been ill-equipped to fend for themselves. It also opens the door to questions as to whether or not the same factual matrix in other finance agreements may now be compensatable.

Implications for Current and Future PCP Claims

The verdict does not bring the PCP claims issue to a close, but it does change the momentum. Thousands of drivers have already filed complaints alleging mis-selling, especially in Personal Contract Purchase (PCP) agreements that featured inflated interest rates due to undisclosed commission models.

Going forward, with a more stringent standard established by the Supreme Court, many claims will likely be put on hold, amended, or even dropped. Law firms and consumer groups are reviewing their cases in the wake of the ruling to determine which can still move forward.

Consumers are advised not to assume their case is invalid without seeking proper guidance. Even though the ruling limits claims, it does not invalidate all of them. If your car finance agreement involved unusually high interest rates or if you were steered toward a particular deal without full disclosure, it may still fall within the realm of compensable misconduct.

For a clearer understanding of what qualifies, this guide to the car finance scandal can provide useful insights.

The FCA’s Next Move: What to Expect in the Coming Weeks

Attention now turns to the Financial Conduct Authority, which is expected to publish a formal update on its investigation. This stage is likely to see a decision on whether further action will be taken against individual lenders, or whether any new compensation scheme will be offered to cover the most serious cases.

Claims management firms and solicitors handling car finance claims will need to align their strategies with the new legal standard, while consumers should be cautious of any blanket promises of compensation.

However, a fresh statement from the FCA has provided more clarity and urgency. The regulator said it welcomes the Supreme Court's clarification of the law and will decide imminently whether to launch a formal redress scheme for affected consumers. The FCA has specifically said it will consult in early October 2025 on whether to implement a formal scheme, and for it to be open for 6 weeks. The consultation will be broad, engaging not only consumers but also car dealers and finance firms.

The FCA added: “Our aims remain to ensure that consumers are fairly compensated and that the motor finance market works well, given around two million people rely on it every year to buy a car.” This sets the stage for a potentially significant intervention, depending on how the consultation is framed and what standard of evidence will be applied.

Don’t Assume You Have No Case: Know Your Rights

Although the legal climate has changed, consumers still have rights. The trick is to figure out where you fit into the court's new standard. If your broker or dealership withheld information about a commission that was used to directly increase your loan amount or if you were strong-armed into a bad deal, you may still have a valid case.

Start by gathering your original documents and communications related to the finance agreement. Any written offers, broker correspondence, or dealer quotes can serve as helpful evidence. Then, assess your eligibility by comparing your case against trusted sources specialising in PCP claims.

Last Words: One Step Forward, Two Steps Back?

A Supreme Court ruling may bring legal clarity, but it is unlikely to deliver a sense of justice for all of the consumers who have been caught up in the car finance scandal. For many, it will feel like a narrowing of the net. But for others, especially those with strong evidence of unfair treatment, the path to redress remains open.

As the FCA prepares its next move and legal experts digest the implications of the ruling, consumers should stay informed, stay proactive, and make decisions based on verified advice, not assumptions.