Car loans: Why could drivers still get compensation after court ruling?
The ruling on Friday was widely considered a victory for finance firms potentially affected, after it was judged that two key cases were did not break the law.
Here the PA news agency looks at why consumers could still be able to make claims for compensation payments.
What was the court case and why was it important?
The UK's highest court was considering an appeal against a Court of Appeal ruling made in October last year, relating to three claimants who had each bought cars on credit.
In each case, the car dealer made a profit on the sale of the car but also received a commission from the lender for introducing the business to them, which the three claimants argued they did not know about.
The Court of Appeal originally found that 'secret' commission payments, as part of finance arrangements made before 2021 without the motorist's fully informed consent, were unlawful.
The lenders, FirstRand Bank and Close Brothers, challenged the decision.
If the case confirmed that these three cases were all still unlawful, then consumers who bought cars with similar finance deals could make claims to potentially secure compensation.
Our aim is a compensation scheme that's fair and easy so there's no need to use a claims management company or law firm.
We'll publish the consultation by early October and finalise any scheme in time for people to start receiving compensation next year.https://t.co/47cNKnqkQX pic.twitter.com/EpfKtMzDV5
— Financial Conduct Authority (@TheFCA) August 3, 2025
What was the result?
On Friday, Lords Reed, Hodge, Lloyd-Jones, Briggs and Hamblen ruled that car dealers did not have a relationship with their customers that would require them to act only in the customers' interest, and that the Court of Appeal was wrong.
But they said that some customers could still receive payouts by bringing claims under the Consumer Credit Act (CCA).
It upheld one of the three claims and stressed that it was still broadly considered 'unfair'.
What does it mean for consumers?
Consumers who are concerned that they were not told about commission and think they may have paid too much could therefore still be eligible for compensation.
The Financial Conduct Authority (FCA) watchdog said not all claims will receive payouts however.
The FCA had launched its own process to look at discretionary commission arrangements (DCAs) on motor finance deals in 2024 but had put this on hold until the outcome of the Supreme Court case.
Some 80,000 open cases on this issue were effectively paused for the ruling.
Who is eligible for compensation?
The case specifically relates to people who took out car loans between 2007 and 2021.
Consumer champion Martin Lewis said in a video posted to X that millions of people are still likely to be due payments.
He told Sky News the consultation is 'likely to mean 40% of people who got a car finance deal between 2007 and 2021 will be due some form of redress'.
How much could I receive?
The FCA said it is consulting on a redress scheme which is expected to cost between £9 billion and £18 billion.
This is expected to mean victims could receive up to £950 in compensation.
The regulator stressed that it was 'hard to estimate precisely at this stage the total cost to industry of the scheme'.
What will the compensation process be?
Currently, a lot is still not known about who exactly is eligible and how it will take place.
The FCA has said that those who have already complained do not need to do anything and advised that others with potential claims contact their car loan provider, rather than use a claims management company.
The regulator added that its consultation will be launched by early October.
If the compensation scheme goes ahead, the first payments should be made in 2026.
What does that mean for car finance firms?
The motor finance industry is expected to cover the costs of the compensation, including administrative costs.
Over the past few years, lenders and motor finance firms have been setting aside money to cover potential compensation payments.
Why has the sector reacted positively to this?
On Monday, shares in lender Lloyds and Close Brothers moved firmly higher after the ruling appeared to be more favourable than expected.
Lloyds told shareholders on Monday morning that further financial provisions are 'unlikely to be material' in order to cover likely redress payments.
While there is still some uncertainty over the cost of redress for the industry, positive outcomes in two of the cases mean they are likely to face fewer claims than previously expected.
AJ Bell investment director Russ Mould said: 'While this issue could still cause some damage, it looks unlikely to be a repeat of the PPI scandal which blighted the banking industry in the 2010s.'
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