The UK Auto Finance industry is bracing for a pivotal legal decision. On 1 August 2025, the Supreme Court is set to rule on a long-running motor finance commission scandal that could trigger massive compensation payouts and reshape the sector. At the heart of the issue is 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, after years of scrutiny by regulators and courts, a landmark judgment looms, and its implications for the Auto Finance industry could be profound.
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 – are at the centre of a scandal now headed to the Supreme Court.
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. The judgment implied that most agreements could be challenged, as commission details were rarely fully explained at the point of purchase or when customers got a quote.
Spotlight on Auto Loans and Commission Transparency
It’s now critical for any reputable lender or bank to ensure transparency in commission structures. Two lenders – Close Brothers and MotoNovo Finance – appealed the decision, arguing they followed industry norms and regulator guidance. The case reached the Supreme Court in April 2025, and the judgment due on 1 August is expected to be the final word on whether these commission-laden car loans broke the law.
What makes this case so significant is the potential scale of consumer redress. Analysts estimate compensation could total £30–44 billion. Major banks and finance companies have already set aside reserves: Lloyds Banking Group’s Black Horse arm has provisioned £1.2 billion, Santander UK has earmarked £295 million, and Close Brothers £165 million. Even manufacturer finance divisions, like Ford Credit Europe, have made provisions.
The FCA’s Position and the Path to Redress
The FCA has told firms to pause complaint handling until the legal position is clear. If the Court upholds the consumer-friendly ruling, a Section 404 redress scheme could be launched, allowing affected borrowers to claim without using claims firms. This could cover agreements for both loans and leasing, across hire purchase, personal contract and other products, regardless of whether customers used a broker or went direct to a bank.
Brokers, Credit Concerns and Industry Impact
For brokers, the stakes are high. The redress plan could leave them liable for billions, and some dealer groups could struggle to survive if refund demands flood in. If the Court limits compensation to the most clear-cut DCA cases, exposure drops; if not, almost every recent car finance customer might be able to borrow back a portion of what they paid.
The potential £30–40 billion liability has drawn government attention. The Treasury is considering extraordinary measures, including retrospective legislation, to limit the impact on the sector if banks and finance companies face a destabilising bill.
Industry Transformation and the Talent Response
Regardless of the outcome, transparency on APR, loan amount, repayment schedules and commission will be critical in the future. Lenders will need to improve how customers apply, how quotes are generated, and how key terms – from purchase price to monthly payment – are explained. Compliance skills will be in demand, along with customer-facing staff trained to use finance calculators and explain complex loan products clearly.
Leasing arrangements and car loans alike will have to meet higher FCA disclosure standards. Firms may appoint leaders to oversee remediation projects, with teams combining regulatory expertise and communication skills.
Looking Ahead
Whether the Supreme Court sides with consumers or lenders, Auto Finance in the UK is set for change. The most competitive providers will be those that combine clear processes – from the moment customers get a quote, through to purchase and repayment – with transparency on every fee, commission and APR. 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.
