What does Supreme Court's car finance ruling mean for drivers? Expert gives easy answer

Car finance has become one of the UK's biggest consumer disputes since the PPI scandal, with millions of drivers potentially paying more than they should have on loans agreed before 2021. The issue centres on commissions, the fees paid by lenders to brokers or car dealers for arranging finance.

Before January 2021, some lenders allowed dealers to adjust the interest rate on a loan. The higher the rate, the more commission the broker received. This set-up, called a discretionary commission arrangement (DCA), gave brokers a clear incentive to hike up rates.

As a result, many drivers were left overcharged, with some cases involving overcharges of hundreds of pounds over the course of their agreement. The Financial Conduct Authority banned DCAs in 2021, but millions of older agreements may still be affected.

That's why car finance compensation has become such a hot topic. Now, this long-running dispute has reached the highest level of the courts. A landmark Supreme Court decision has narrowed the scope for consumers seeking compensation but, crucially, it also confirmed that some agreements remain unfair, keeping the door open for future claims.

The decision has narrowed the scope for consumers seeking compensation over car finance agreements, but millions may still be in line to claim. Here's what's changed, and how it could affect you.

The case centred on whether commission payments in certain car finance deals created an "unfair relationship" between lenders and customers. Ben Snape, CEO at Claim.co.uk, a leading claim assessment and referral service, explained: "The judges have made it clear that commission alone isn't automatically unfair, and simply arranging finance through a broker doesn't make the deal unfair either.

"That's a big shift from the earlier assumption that almost all agreements could be eligible." However, the court's ruling in Johnson vs. Firstrand made waves by finding that a 55% undisclosed commission did create an unfair relationship. In that case, the lender had to repay the commission plus interest.

James Reed, Reed & Co Solicitors, added: "What's key is that the agreement didn't need to involve a discretionary commission arrangement (DCA) to be found unfair. The problem was the sheer size of the commission and the fact that it was hidden from the customer."

The pool of potential claims is now smaller, but still significant. The Guardian recently reported that up to 14.6 million customers could qualify, with potential payouts totalling up to £18bn.

According to Ben Snape: "If your agreement was under a DCA model, where brokers could set their own commission rates, your chances of a successful claim are much higher."

James Reed continued: "Even without a DCA, claims are possible if the commission was excessive and undisclosed. The Johnson case is proof that lenders can still be held accountable in those situations." However, agreements with lenders that never operated a DCA are now far less likely to be eligible.

What do I need to do?

If you bought a car on finance before 2021:

Find your agreement - check which lender you used.

Research the lender's commission model - did they use a DCA, or could excessive commission be involved?

Seek legal guidance - an independent solicitor or claims service can advise on whether your circumstances fit the court's criteria. You can also make these claims for free without the use of a claims management company, either directly to the lender, or via the Financial Ombudsman Service.

"For many people, the ruling will mean they're no longer eligible. But for those who had the right type of agreement, particularly with the DCA model, there's still a route to claim," added Snape.

In short, fewer agreements now meet the bar for compensation, but the potential payouts for those that do remain significant. The Financial Conduct Authority (FCA) plans to create a scheme to compensate motor finance customers who were treated unfairly, without them having to fight it out in court.

The consultation is due to launch in October 2025, with the aim of finalising the scheme next year and starting payouts in 2026.