Car Finance Scandal UK: What the Supreme Court ruling means for you

Aug 4, 2025 | Car Finance

Editor, Consumer Finance: Michelle Blackmore

Last Updated: October 12, 2025

Did you buy a car through Vehicle Finance before 2021? If so, you may be asking whether you’re entitled to compensation. Following a recent Supreme Court ruling, the situation has become more complex for lenders and car buyers alike.

The car finance market is under intense scrutiny after widespread concerns about how motor finance agreements were sold. At the heart of the issue are discretionary commission arrangements (DCAs), where dealers were incentivised to charge customers higher interest rates in exchange for larger commissions. Regulators have warned that this practice may have led to unfair treatment and potential breaches of Consumer Duty expectations.

Millions of UK drivers could now be affected by what’s being called one of the largest financial mis-selling scandals since PPI. If you took out a car finance agreement before 28 January 2021, it’s worth understanding how the market has changed, and what your rights may be.

The unfolding scandal has left many drivers unsure where they stand, and what to do next. In this article, we explain what’s happened, how it potentially affects you, and what steps you can take if you think you’ve been impacted.

What is the car finance scandal?

The car finance scandal UK centres on now banned commission deals between car dealers and lenders, known as discretionary commission arrangements (DCAs). These agreements gave dealers a financial incentive to charge customers higher interest rates and many buyers didn’t know it was happening.

The Financial Conduct Authority (FCA) banned DCAs in 2021. Since then, the regulator has been examining whether people who bought cars under these arrangements, possibly as far back as 2007, should be compensated.

Roughly 40% of car finance deals made before 2021 involved this model. And with more than two million new and used cars financed every year in the UK, the potential scale of the mis-selling was huge.

What just happened and how does it change things?

The Supreme Court ruling that car finance companies had been waiting for arrived on Friday. Three test cases were considered. Two of them, brought by consumers, were dismissed. The third, however, was upheld.

In that case, a driver had unknowingly paid a 55% commission to a dealer, a charge buried in the cost of the finance. The court ruled this made the loan “unfair”. He will now receive a refund for the commission and interest.

But the overall result narrows the path to compensation. The court decided that simply paying commission wasn’t unlawful. In most cases, customers won’t be able to claim.

So if you’re asking “what is the car finance scandal?” or “am I owed money?”, the answer now depends on whether the commission in your deal was especially large or hidden in a way that misled you.

What’s the update from the FCA?

In its car finance scandal update, the FCA said it would consult on a redress scheme starting in October. It plans to look at both:

cases involving excessive or undisclosed commissions
and those involving DCAs where terms weren’t clearly explained.

It estimates the total cost of the scheme could range from £9bn to £18bn. But most drivers, the regulator says, would receive less than £950 per deal.

If you’ve already complained about your loan, you don’t need to do anything now. If you haven’t yet, the FCA recommends contacting your lender directly rather than using a claims management company, which may take a fee.

The regulator has said it will require firms to notify customers if they might be eligible and ensure the claims process is accessible. Agreements going back to 2007 may be included, though this has sparked concern in the industry over the availability of historical paperwork.

When will the car finance scandal pay out?

Payouts are unlikely to begin until 2026 at the earliest. First, the consultation must run its course. Then the scheme would need to be formally introduced and implemented across the industry.

Some motorists may still be eligible for compensation under the current ombudsman process or via court, particularly in high-commission cases like the one upheld by the Supreme Court.

But for most affected drivers, the redress process will depend on what emerges from the FCA’s scheme.

What companies are involved in the car finance scandal?

A number of major UK lenders have been affected. Many have already set aside funds to cover possible payouts:

Lloyds Bank – £1.15bn
Santander – £295m
Close Brothers – £165m
Northridge Finance – £143m
FirstRand/MotoNovo – £140m
Others include Barclays, FCE Bank, Investec, and Aldermore

Some of these costs include covering not only customer compensation, but also administrative and legal costs.

What’s the industry saying?

Not everyone agrees with how the scheme is shaping up. The Finance and Leasing Association, which represents motor finance firms, has called the plan completely impractical, especially the proposal to review deals dating back nearly two decades.

They argue that neither firms nor customers are likely to have sufficient documentation from as far back as 2007. There’s also concern that the costs could lead to fewer car finance products being offered in the near future.

But the FCA insists the market remains strong and that fairness for consumers must be prioritised.

So, what should drivers do now?

If you financed a car before 2021, especially through a dealer rather than a bank. it may be worth checking your agreement. Was the interest rate high? Were the terms clearly explained? If not, you might still have a case.

The car finance scandal has evolved quickly and it’s not over yet. The next key date is October, when the FCA will begin formal consultation on its redress scheme.

Until then, drivers are left with a question: Could I have paid more than I should have?

The road ahead

The Supreme Court ruling has not completely closed the door to mass compensation. The outcome offers limited hope for some, particularly those whose finance deals included large or undisclosed commissions. The FCA’s proposed scheme could still result in billions paid out, although most individuals will see relatively modest sums.

What’s clear is this: the full cost of the UK car finance scandal is still being calculated and for many motorists, answers are still to come.

As the market moves forward, the case underscores the importance of choosing car finance providers carefully and making sure you fully understand the interest rates, fees, and terms before signing any agreement.