Road to the ruling Where does judgment leave vehicle-buyers who were expecting a payout?

The car loans scandal has been rumbling on for more than 18 months but ballooned after a court of appeal judgment that sided with three consumers in October 2024.

- Kalyeena Makortoff Rupert Jones

How did we get here?

Before that point, the Financial Conduct Authority (FCA) was running a narrower investigation into discretionary commission arrangements (DCAs), where motor finance lenders gave dealers the power to set interest rates on car loans. The higher the interest rate, the more commission the dealer received. The controversial practice - which allegedly incentivised dealers to overcharge customers was banned by the FCA in 2021.

In the meantime, three car buyers took their cases to the court of appeal, which ruled on the much wider issue of how commissions were disclosed. In October 2024, that court sided with the claimants and ruled it was against the law for the dealers to receive any sort of commission from the lender without first telling the customer and getting their informed consent.

Why was the court of appeal's ruling so important?

The shock decision had ramifications for all hidden commission arrangements, not just DCAs. Across Britain, 80%-90% of new cars, and an increasing number of used vehicles, are bought with the help of a loan, the vast majority of which would have been arranged by a broker who is paid commission by a lender.

The judgment threw open the door to a huge compensation bill for car lenders including Santander UK, Close Brothers, Barclays and Lloyds, that some analysts said could top £44bn.

That would be comparable to the payment protection insurance (PPI) saga, which cost banks £50bn.

It also raised concerns that other types of loans involving commission payments to brokers could be in play, such as those for appliances and furniture.

The two specialist lenders involved in the court of appeal case, Close Brothers and FirstRand, challenged the ruling in the supreme court, which has now issued its verdict.

What did the supreme court decide?