Motorists won’t get car finance compensation

A legal ruling that could have led to millions of motorists being awarded compensation has been overturned.

Last October, the Court of Appeal ruled that the practice of including hidden commission arrangements in car finance loans was unlawful.

However, the Supreme Court has now ruled in favour of lenders, which means most of the affected drivers won’t get payouts.

What is the car finance scandal?

In January 2024, the Financial Conduct Authority (FCA) started investigating discretionary commission arrangements (DCAs) on car loans issued between 2007 and 2021. 

DCAs helped banks and lenders providing car finance to allow dealers to set their own interest rates on repayment plans.  

This meant car dealers could undercut the bank or lenders’ preferred rate to secure a sale, or charge more so that they could earn higher commission. 

The practice was banned in 2021.

Government will ‘work with regulators and industry’

Responding to the judgement, the Treasury said it will now work with regulators and industry “to understand the impact for both firms and consumers”.

“We recognise the issues this court case has highlighted,” a spokesperson said.

“That is why we are already taking forward significant changes to the Financial Ombudsman Service and the Consumer Credit Act.

"These reforms will deliver a more consistent and predictable regulatory environment for businesses and consumers, while ensuring that products are sold to customers fairly and clearly."