Millions of motorists may soon be owed major payouts as a key deadline for legal proceedings over widespread mis-selling of car financing is set to be revealed.
The Supreme Court will be delivering a crucial judgement on Friday which could pave the way for a massive redress scheme potentially affecting millions. It will rule on a shock Court of Appeal ruling last autumn that all car finance agreements with hidden commission were unlawful.
The Financial Conduct Authority (FCA) has said it will set out exactly how an industry-wide redress scheme will work following the Supreme Court decision.
Up to 90 per cent of new cars purchased in the UK are bought using motor finance, meaning millions could potentially be due payouts following the ruling.
Anyone who bought a car before January 2021 using a car finance scheme could be eligible for compensation after the FCA found that many “may have been charged too much” by their lenders.
This is because some companies ‘discretionary commission arrangements’ with brokers, which gave them the power to adjust customers’ interest rates on Personal Contract Purchase (PCP) and Hire Purchase agreements.
Because these brokers earned more commission on higher rates, this created an incentive to maximise the rate given. An estimated 40 per cent of car finance deals were thought to be affected by the issue.
The FCA outlawed this practice from 28 January 2021, but acknowledge that a “high number” of people have now come forward to claim they had been overcharged before the ban.
The financial regulator has confirmed that it will consult on a redress scheme and laid out the factors it will consider. In a statement in March 2025, it said: “Firms would be responsible for determining whether customers had lost out due to their failings, but the FCA would set rules that firms must follow under the scheme and introduce checks to ensure they do.”
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However, the FCA is waiting for the upcoming Supreme Court judgement before finalising details, as the outcome of this case could expand the scope of the redress scheme much further.
The shock Court of Appeal ruling last autumn found that if a car finance agreement didn’t inform customers of all the details of commission, it was likely unlawful. This is a regular practice, with experts predicting 99 per cent of deals are affected by the issue.
It is car finance firms Close Brothers and Motonovo are appealing this judgement in the Supreme Court, with the final judgement set to decide how many motorists will be due compensation.
The FCA has said it will confirm within six weeks of this judgement if it is launching a compensation scheme.
Money expert Martin Lewis said: “This decision could have ramifications across the economy, far beyond car finance.
“If the Supreme Court doesn’t overturn the Court of Appeal decision, the knock-on effects could be substantial on other forms of lending and the economy. It could shake the foundations of consumer lending (meaning less possible available credit for many).
“So much so, I have long said I worry it may do more harm than good for consumers. It’s therefore unsurprising there’s talk of the Chancellor overruling the decision if the Supreme Court follows the Court of Appeal.”
The Money Saving Expert founder and FCA have both advised those who believe they may be affected to hold off on signing up to any claims management or law firms advertising their services over the issue. This is because these services will not be required if payouts are automatic, but may still be able to take payment.
The regulator explains: “Consumers should be aware that by signing up now with a CMC or law firm, they may end up paying for a service they do not need and having to pay up to 30 per cent in fees out of any award they may receive.”