Drivers should be ‘very pessimistic' over car finance claims, say lawyers
Nevertheless, the financial watchdog has said it is still considering whether to launch a redress scheme for consumers who potentially receive compensation.
Lawyers have also indicated that some consumers should still consider pursuing their claims over 'unfair' treatment.
We welcome that the Supreme Court has clarified the law. We want to provide clarity as quickly as possible. So we'll confirm whether we will consult on a redress scheme before markets open on Monday 4 August.https://t.co/xlWulkOyEj pic.twitter.com/GrCuk1dFk8
— Financial Conduct Authority (@TheFCA) August 1, 2025
Two lenders, FirstRand Bank and Close Brothers, went to the UK's highest court to challenge a Court of Appeal ruling which found 'secret' commission payments paid by buyers to car dealers in agreements before 2021 without the motorist's fully informed consent were unlawful.
The ruling last year found three motorists, who all bought their cars before 2021, should receive compensation.
But in a decision on Friday, justices at the UK's highest court overturned the Court of Appeal, though some customers could still receive payouts by bringing claims under the Consumer Credit Act (CCA).
Lawyers for the lenders told the Supreme Court at a three-day hearing in April the decision was an 'egregious error', while the Financial Conduct Authority intervened in the case and claimed the ruling 'goes too far'.
However, the judges upheld a claim brought by one driver under the CCA that his relationship with the finance company had been 'unfair', awarding him the commission amount of £1,650.95 plus interest.
Lizzy Comley, chief operating officer of consumer law firm Slater and Gordon, said the ruling still reinforces the right of many consumers to pursue claims.
Following today's Supreme Court decision regarding the mis-selling of car finance, Slater and Gordon's, Elizabeth Comley, has issued the following statement. Read the statement in full on our website: https://t.co/ec2WpUMOWg pic.twitter.com/X08oT7GfuE
— Slater and Gordon UK (@SlaterGordonUK) August 1, 2025
She said: 'This landmark ruling is positive news for the millions of people who have lost money due to the car finance mis-selling.
'The court confirmed that for years, consumers have potentially been unfairly overcharged on car finance agreements, and this ruling reinforces their right to pursue justice and recover the compensation they deserve.'
However, others have said that the ruling will make it harder for most claims.
Nicola Pangbourne, partner at Kennedys law firm, said: 'If I was a driver, I would be very pessimistic about getting compensation. There's now quite a few hurdles they've got to get through.'
Industry experts have suggested the ruling will be broadly seen as a success for lenders, who had been preparing for significant compensation payments.
Caroline Wayman, global head of financial Services at PA Consulting, said: 'Lenders will breathe a sigh of relief at the ruling, but it should still be a wake-up call for firms to scrutinise any large, undisclosed commissions in their business.
'Firms should ask themselves whether it still feels justifiable or could be considered unfair, particularly if they haven't disclosed commercial ties to the broker and it won't be enough to expect customers to have read and understood the fine print.'
On Friday, a spokesperson for the Financial Conduct Authority said after the ruling that it would confirm whether it will consult on any such scheme by 8am on Monday.
They said: 'We want to bring greater certainty for consumers, firms and investors as quickly as possible.'
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Independent
2 hours ago
- The Independent
Martin Lewis explains how to claim car finance mis-selling compensation as FCA predicts payouts worth up to £950
Financial expert Martin Lewis has advised on the next steps for drivers who were mis-sold car loans, after a financial regulator said the industry could pay out up to £18bn in compensation. The Financial Conduct Authority is launching a compensation consultation which will determine how much is paid out to millions of people who paid more interest than they knew about. A Supreme Court ruling on Friday (1 August) found that lenders are not liable for hidden commission payments in car finance schemes, a decision which means most of the claims will not go ahead, but only the most serious claims will be eligible for compensation. But many cases in a separate strand of the car finance mis-selling case, which was not part of the Supreme Court ruling, are still likely to receive payouts, Mr Lewis explained. Am I eligible for the compensation scheme? Mr Lewis explains that there are 'two strands' of the car finance mis-selling case. Discretionary Commission Arrangements (DCAs), which Mr Lewis says will be the main form of compensation to come out of the consultation, were not involved in the Supreme Court case, he said. 'The one most people have complained about wasn't involved in the Supreme Court decision, although it was on hold just in case anything in that decision caused a wobbler for DCAs,' Mr Lewis added. DCAs were banned in January 2021, so anyone with a personal contract purchase (PCP) or Hire Purchase (HP) deals before then, is likely to have unknowingly agreed to one. 'It is when you went to a car broker or dealer and it increased the amount of interest that you were charged to increase the amount of commission without telling you,' Mr Lewis explained. Those who had PCP or HP deals are 'likely to get compensation under this scheme'. But Mr Lewis notes that those who had 0 per cent interest, or whose commission was very small, are unlikely to receive compensation. But he says that for most people, the compensation will be in the hundreds of pounds. The other strand of the mis-selling case is the one element of the Supreme Court case which was upheld by the court - with the other two being dismissed. This refers to commissions which were 'manifestly unfair', Mr Lewis explained, adding that it is harder to define because it was done on a case-by-case basis. Factors in the payout may even include how vulnerable you are - and whether it is therefore seen as more unfair for the commission to have been so high. As this is done case-by-case and it is not a blanket issue like the DCA cases, it is unclear how the compensation scheme will work for these, Mr Lewis said. What should I do next? For those that are unsure whether they are eligible, Mr Lewis advises putting in a complaint to see whether you had a DCA. 'If you're one of those people who have already had a letter saying that your car finance firm, after you complained, won't deal with it until December this year, that will almost certainly be delayed until next year,' he said. The FCA is advising consumers who believe they may have paid too much should complain now, and advise against using Claims Management Firms (CMC) or law firms, which could cost up to 30 per cent of any compensation fees received. Lenders will have to contact customers, and either automatically pay out consumers or consumers will have to opt into a scheme for compensation, meaning receiving compensation will be 'very simple to do', Mr Lewis explained. Therefore, CMCs and law firms could take 30 per cent of the compensation without doing any work. Mr Lewis' money advice website MoneySavingExpert offers a free tool which will do a template complaint for you for DCAs. How much could I be compensated? The FCA estimates that most individuals making claims will receive 'less than £950 in compensation per agreement'. The final cost of a compensation scheme will depend on the final design which it takes, the FCA added in its statement earlier today. The first payments are forecast to be made in 2026. For DCA cases, the maximum you could receive is all of the commission you paid, Mr Lewis said. It is more likely you will be paid the higher interest rate you were charged minus the standard interest rate. A simple interest - meaning the interest is calculated on the original amount of the loan - of roughly 3 per cent per year will be added on top of the payout, Mr Lewis added. 'The very high likelihood is that many people who had a discretionary commission arrangement where they were charged more interest than they should have been will get back a chunk of that in the hundreds of pounds at some point in 2026,' he said. But the expert warned that the industry could 'fight this hard', before he urged industry members to accept the 'fair compromise'.
North Wales Chronicle
5 hours ago
- North Wales Chronicle
Motor finance customers could receive payout as FCA will consult on scheme
Many motor finance firms were not complying with rules or the law by not providing customers with relevant information about commission paid by lenders to the car dealers who sold the loans, the FCA said. It comes after Friday's ruling by the Supreme Court on cases in which the FCA had intervened. While some motor finance customers will not get compensation because in many cases commission payments were legal, the court ruled that in certain circumstances the failure to properly disclose commission arrangements could be unfair and therefore unlawful, the FCA added. The FCA estimates that most individuals will probably receive less than £950 in compensation. The final total cost of any compensation scheme is estimated to be between £9 billion and £18 billion, the FCA added. The consultation will be launched by early October. If the compensation scheme goes ahead, the first payments should be made in 2026. On Friday, the UK's highest court ruled that car dealers did not have a relationship with their customers that would require them to act 'altruistically' in the customers' interest. The decision comes after two lenders, FirstRand Bank and Close Brothers, challenged a Court of Appeal ruling which found 'secret' commission payments, paid by buyers to dealers as part of finance arrangements made before 2021, without a motorists' fully informed consent, were unlawful. The ruling in October last year found that three motorists, who bought their cars before 2021, should receive compensation after they were not told either clearly enough or at all that the car dealers, acting as credit brokers, would receive a commission from the lenders for introducing business to them. But in a decision on Friday, justices at the UK's highest court overturned the Court of Appeal ruling, though some customers could still receive payouts by bringing claims under the Consumer Credit Act (CCA). Lawyers for the lenders told the Supreme Court at a three-day hearing in April that the decision was an 'egregious error', while the Financial Conduct Authority intervened in the case and claimed the ruling 'goes too far'. However, the judges upheld a claim brought by one driver under the CCA that his relationship with the finance company had been 'unfair', awarding him the commission amount of £1,650.95 plus interest. Nikhil Rathi, chief executive of the FCA, said: 'It is clear that some firms have broken the law and our rules. It's fair for their customers to be compensated. 'We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal. 'Our aim is a compensation scheme that's fair and easy to participate in, so there's no need to use a claims management company or law firm. If you do, it will cost you a significant chunk of any money you get. 'It will take time to establish a scheme but we hope to start getting people any money they are owed next year.' People who have already complained do not need to do anything, the FCA said. Consumers who are concerned that they were not told about commission and think they may have paid too much to their motor finance lender should complain now. Consumers do not need to use a claims management company or law firm and doing so could cost them around 30% of any compensation paid, it added. In a post on X, consumer champion Martin Lewis wrote 'there's no harm in putting a DIY complaint now to see if you had a Discretionary Commission Arrangement'. The FCA will propose rules on how lenders should 'consistently, efficiently and fairly' decide whether someone is owed compensation and how much, it said. It will monitor if firms are following the rules and act if they are not. Sam Ward, chief investigator and director at Sentinel Legal, called for the FCA to engage with law firms. He said: 'The FCA has taken long enough to pick a side and now is not the time to rush anything. 'They've known about this scandal since 2017. They banned discretionary commissions in 2021. The Court of Appeal ruled. The Supreme Court ruled. And now, finally, the FCA is considering redress. But after years of delay, rushing through a flawed scheme would be a disaster for consumers. 'For too long, claimant-focused firms like Sentinel Legal have raised the alarm. We've provided overwhelming evidence of lender misconduct, of deliberate overcharging, of systemic misselling. And that's largely fallen on deaf ears. 'The FCA must now engage with the firms who've been in the trenches, firms who've taken banks to court and won on behalf of consumers. To issue a consultation without first consulting those who exposed this injustice would be fundamentally unfair. 'We cannot have a redress scheme that's self-administered by the same banks who caused the problem in the first place. There must be proper checks and balances. Someone has to hold lenders accountable. That role has, until now, been filled only by law firms and that has to change. 'So our message to the FCA is simple: don't rush. Do what's right. Engage fully with the evidence, with the firms who know the landscape, and with the people who've been fighting for justice since the start. That's how you deliver a redress scheme that is fair, credible and aligned with the reality of what consumers have been through.'
The Independent
6 hours ago
- The Independent
Car finance scandal victims to get less than £950 each in compensation
The financial regulator estimates the compensation scheme for those impacted by the car finance scandal could cost between £9 billion and £18 billion, a significant reduction from the £45 billion initially projected. Individuals eligible for compensation are forecasted to receive less than £950 each. The statement from the FCA comes after the Supreme Court ruled that hidden commissions from lenders to car dealers on car loans were not unlawful, impacting millions of potential compensation claims. The decision means the majority of claims for mis-sold car loans will not proceed, with only the most serious cases eligible for compensation. The FCA plans to launch a consultation for payouts by early October, with the first payments expected in 2026, advising consumers against using claims management companies.
