The UK Auto Finance industry has been reshaped by a pivotal legal decision. On 1 August 2025, the Supreme Court ruled on the long-running motor finance commission scandal, largely siding with lenders but leaving the door open to a major redress scheme that is now under way. At the heart of the issue was the once-common practice of brokers (often car dealers) receiving commissions from lenders for arranging car loans, sometimes without the customer’s full knowledge. This meant many car buyers paid more in interest and APR than necessary, as dealers could hike rates to earn a bigger cut. Now, with the judgment delivered and a redress scheme confirmed by the Financial Conduct Authority (FCA), the implications for the Auto Finance industry are becoming clear, even as legal challenges continue to delay payouts.
For years, many UK car buyers unknowingly paid higher interest on car loans due to hidden broker commissions. These undisclosed arrangements – where a dealer’s reward grew if they increased the APR – were at the centre of a scandal that went all the way to the Supreme Court, and are now the subject of an industry-wide compensation scheme.
From Hidden Commissions to a Legal Showdown
The controversy dates back to how car finance deals were structured before 2021. Lenders often allowed brokers or dealerships to adjust the interest rate on a finance agreement, with higher rates directly increasing the broker’s commission. These discretionary commission arrangements (DCAs) created a conflict of interest: brokers had an incentive to charge borrowers more. As a result, thousands of consumers ended up paying more than necessary for their finance, without being told how the commission worked or how it affected their loan amount. The FCA banned DCAs in January 2021, but millions of agreements – including hire purchase and personal contract plans – had already been made. Complaints began pouring in.
Many consumers today research multiple car finance products before they apply, often using a finance calculator to estimate their monthly payment and compare offers. Faced with mounting complaints, the FCA launched a review in January 2024 to investigate potential mis-selling in the motor finance market. Urgency increased when the Court of Appeal ruled in October 2024 that it was unlawful for car dealers to receive commissions from lenders without clear disclosure and consent. That judgment implied that most agreements could be challenged, because commission details were rarely fully explained at the point of purchase or when customers got a quote.
The Supreme Court’s Verdict
Close Brothers and MotoNovo Finance, along with FirstRand Bank, appealed the Court of Appeal’s decision, arguing they had followed industry norms and regulator guidance. The case reached the Supreme Court in April 2025, and on 1 August 2025 the Court handed down a unanimous judgment in the linked cases of Johnson and Wrench v FirstRand Bank and Hopcraft v Close Brothers.
The ruling was largely a win for lenders: the Court found that car dealers do not owe a fiduciary duty to their customers, and that lenders were not liable at common law for paying a “bribe,” nor as accessories to any breach of fiduciary duty by dealer brokers. This overturned the more consumer-friendly Court of Appeal decision and removed the basis for the largest, most sweeping compensation claims.
However, the Court carved out one important exception. It found that Mr Johnson’s individual agreement was “unfair” under the Consumer Credit Act 1974, based on the specific facts of his case: the commission made up 55% of the total charge for credit, and the paperwork he was given created a false impression that the dealer was acting independently rather than earning a commission-linked reward. This narrower route – unfairness under the Consumer Credit Act, rather than breach of fiduciary duty – became the template for the redress scheme that followed.
The FCA’s Redress Scheme
Because the Supreme Court’s ruling substantially reduced lenders’ exposure compared to the doomsday scenarios floated in 2025 (analysts had earlier estimated £30–44 billion in potential compensation), the FCA moved quickly to design an industry-wide alternative to a wave of individual court claims. It consulted on a redress scheme from October 2025 and confirmed the final rules in March 2026 under Policy Statement PS26/3.
The scheme covers an estimated 12 million+ agreements made between 2007 and 2024, spanning hire purchase, personal contract plans and other motor finance products, regardless of whether the customer used a broker or went directly to a lender. Customers are eligible for compensation if they were not clearly told that their dealer or broker could set the interest rate to earn more commission (a DCA), if the commission was disproportionately high (at least 39% of the total cost of credit and 10% of the loan amount), or if the dealer had a tied or preferential arrangement with a single lender that wasn’t disclosed.
Redress is expected to average around £830 per agreement, with total payouts across the industry estimated at roughly £7.5 billion – far below the earlier worst-case forecasts, but still one of the largest consumer redress exercises in UK financial services history. Lenders including Lloyds Banking Group’s Black Horse, Santander UK, Close Brothers and Ford Credit Europe had already set aside provisions ahead of the ruling and have since had to reassess them against the confirmed scheme.
Legal Challenges Delay Payouts
The scheme has not gone unchallenged. Consumer Voice (represented by Courmacs Legal) argues the compensation terms are too low, while Volkswagen Financial Services, Mercedes-Benz Financial Services and Crédit Agricole Auto Finance have challenged other aspects of the scheme’s design. On 2 July 2026, the Upper Tribunal agreed to partially suspend the scheme while it hears these challenges, meaning lenders are not currently required to calculate or pay redress, although they must still identify affected agreements and gather the underlying commission and disclosure data.
The Tribunal is expected to hear the case in December 2026 or February 2027, with a judgment likely to follow some months later. If the scheme survives the challenge, most payouts are now expected to begin in 2027 rather than during 2026 as originally planned. In the meantime, consumers are still able to submit complaints, and doing so now preserves their place in the queue regardless of how the legal challenges are resolved.
Broker and Industry Impact
For brokers and dealer groups, the outcome has been better than the worst-case scenario feared in 2025, since the Supreme Court’s fiduciary-duty findings sharply narrowed the basis for claims. But the confirmed redress scheme still represents a substantial and now heavily litigated liability, and the uncertainty created by the ongoing tribunal challenges has made it difficult for lenders and dealer groups to finalise provisions or plan resourcing with confidence.
Industry Transformation and the Talent Response
Regardless of how the tribunal challenges are resolved, transparency on APR, loan amount, repayment schedules and commission is now firmly embedded as a regulatory expectation. Auto finance providers have had to overhaul how customers apply, how quotes are generated, and how key terms – including commission arrangements – are explained. Compliance skills remain in high demand, alongside customer-facing staff trained to use finance calculators and explain complex loan products clearly.
Leasing arrangements and car loans alike must now meet higher FCA disclosure standards, and many firms have appointed dedicated leaders to oversee redress and remediation projects, combining regulatory expertise with customer communication skills.
Looking Ahead
The Supreme Court’s ruling did not end the motor finance commission saga – it redirected it into a regulator-led redress scheme that is itself now tied up in legal challenges. With the Upper Tribunal not expected to rule until early-to-mid 2027, lenders and dealer groups face another extended period of uncertainty, provisioning against a scheme whose final shape is still not settled. For consumers, the practical advice remains to complain now rather than wait, since the scheme’s eventual outcome – whatever it is – is expected to apply to complaints already lodged.
For the industry, the direction of travel is unambiguous even if the exact bill isn’t yet known: providers that build clear, well-documented processes from the moment a customer gets a quote through to purchase and repayment, with full transparency on every fee, commission and APR, will be best placed to weather whatever the tribunal decides. In doing so, the industry can begin to restore trust, while ensuring customers understand exactly what they sign up for when they borrow to buy or lease cars.
