UK drivers disappointed as court blocks most car finance refunds — check if you’re still eligible

A landmark ruling by the UK Supreme Court has blocked millions of motorists from pursuing compensation for undisclosed commissions tied to car loans—dashing hopes of a payout scandal on par with PPI.

In a closely watched decision, the court sided with finance providers in two out of three key test cases that examined whether it was unlawful for banks and lenders to pay hidden commissions to car dealerships for arranging motor finance agreements.

This ruling overturned previous court decisions that had paved the way for widespread compensation claims from consumers who had unknowingly paid inflated interest rates due to dealer incentives.

Despite this setback, there remains a possibility of compensation for drivers who entered into specific types of finance agreements before 2021—particularly under the now-banned Discretionary Commission Arrangements (DCAs).

What the Court Decided

The Supreme Court reviewed three appeals brought by finance companies FirstRand Bank and Close Brothers. The companies challenged a 2021 Court of Appeal ruling which had held that undisclosed commissions made the credit agreements unfair.

Motorists argued that car dealers had a fiduciary duty to act in their best interest when arranging finance deals. But in delivering the judgment, Lord Reed dismissed this, stating there was no evidence that dealers had offered such a commitment to put customer interests ahead of their own.

However, in one of the three cases—that of Marcus Johnson—the court found in favour of the motorist. It ruled that the commission paid to the dealer, which amounted to 55% of the total credit charges, made the loan agreement “unfair.” Mr. Johnson was awarded compensation equal to the commission plus interest.

Reacting to the decision, Johnson said he was “pleased” with the personal outcome but expressed disappointment for others who will not benefit:

“It’s a win, but it’s a really big bag of salt to go with it,” he said.

What This Means for Drivers

Though the scope for mass claims has narrowed, experts say thousands of drivers may still be eligible for compensation under DCA-related deals. According to the Financial Conduct Authority (FCA), around 40% of cars sold on finance before 2021 involved such arrangements—under which dealers were rewarded with higher commissions for securing loans with steeper interest rates.

These practices were officially banned in 2021, following regulatory concern over how they inflated costs for consumers.

Richard Barnwell of advisory firm BDO estimated that if DCAs are deemed unfair, redress payouts could still range from £5 billion to £13 billion or more.

MoneySavingExpert founder Martin Lewis echoed the call for action, saying he’d be “gobsmacked” if the regulator did not propose a redress scheme. He also predicted payouts could approach £10 billion.

What Happens Next?

The FCA has acknowledged the ruling and said it is “considering the judgment carefully.” The regulator plans to announce whether it will consult on a formal redress scheme before markets open on Monday, 4 August.

“We want to bring greater certainty for consumers, firms and investors as quickly as possible,” the FCA stated.

Consumer rights advocates have urged swift regulatory intervention. Alex Neill, co-founder of Consumer Voice, described the ruling as “disappointing” but emphasized the importance of the court clarifying when customers deserve redress.

Meanwhile, the Finance and Leasing Association welcomed the ruling as a “return to clarity” in the car finance market. A Treasury spokesperson also weighed in, saying the government “respects the judgement” and will “work with regulators and industry” to assess the impact.