The Supreme Court has overturned a landmark car finance ruling by the Court of Appeal, which could have cost the car finance industry more than £44bn in compensation for alleged mis-sold car finance deals.
Back in November 2024, several car finance companies were forced to halt operations as a landmark Court of Appeal's judgement found that brokers had a fiduciary responsibility towards clients and therefore should have acted in the best interests of the customers. In addition, it ruled that any commission should have been clearly disclosed to the customer. Today, the Supreme Court overturned this decision and ruled that car finance dealers did not necessarily need to act in the best interests of their customers. They also did not have a fiduciary responsibility towards their customers.
This means the far-reaching consequences which the car industry feared have been more or less averted. That said, the Supreme Court did uphold one specific Court of Appeal ruling; that of the case of Mr Johnson. It found that there was an unfair relationship between Mr Johnson and FirstRand due to the size of the commission paid to Mr Johnson's broker, as well as the failure to disclose the commission, and the concealment of the commercial relationship between the broker and FirstRand. Mr Johnson was awarded compensation as a result.
It's also important to keep in mind that this case is separate from the DCA (Discretionary Commission Arrangement) review, which the FCA is currently undertaking. The DCA car finance review relates to deals where car dealers sold finance deals at higher interest rates to earn higher commissions. These types of deals were banned by the FCA back in 2021, but as there were thousands of complaints by customers who believed they'd been treated unfairly, the FCA started its own investigation to determine whether there had been mis-selling.
Customers who bought a car on finance before January 28, 2021 may have a DCA deal. You may need to contact your car dealer to find out whether this is the case. If it is, you may be owed compensation depending on the FCA's review findings.
What should I do next if I believe I've been mis-sold car finance
Despite the ruling, it's likely many people who previously bought a car on finance will still be entitled to some form of compensation, particularly those who have a DCA. However, even customers without a DCA may be due compensation in some circumstances, as the Supreme Court did uphold one of the Court of Appeal rulings. It's likely, however, that non-DCA car finance deals will be looked at on a case-by-case basis.
The FCA's redress scheme
The FCA previously stated it'll consult on a redress scheme pending the outcome of the Supreme Court ruling. A redress scheme would mean that firms guilty of mis-selling car finance may need to contact and compensate affected customers even if the customers have not made a complaint.
However, the FCA has also said that it'll confirm its decision on a redress scheme within six weeks of the Supreme Court judgement. Therefore, it's likely there'll be more information on what the complaints process will look like in the next six weeks. If a redress scheme happens, compensation may be automatic meaning you won't need to have made a complaint to be compensated.
Should I make a complaint now?
If you believe you've been mis-sold a car finance deal, your first port of call for any complaints should be the lender or broker that arranged your deal. You should include as much information as possible in your complaint to help the provider find your loan. This can include things like your policy number, the date of the agreement, the vehicle number plate and your address at the time when you took out the agreement.
You should then receive an acknowledgement of the complaint within 8 weeks of sending it. Bear in mind, however, that due to the uncertainty around car finance mis-selling, the FCA has introduced temporary rules whereby firms do not have to issue final responses to DCA commission complaints AND non-DCA commission complaints until after December 4, 2025. Customers, in turn, also have longer to refer the case to the Ombudsman if the final response is unsatisfactory. You can find out more on the Financial Ombudsman Service website.
Should I use a claims company to make a complaint?
It's best not to sign up with a claims company to process your car finance complaint because claims companies can take a big chunk of the compensation you're owed. However, if the FCA introduces a redress scheme, your compensation could be automatic, which means you would not have needed their services in the first place.
It's likely there'll be more clarity over car finance mis-selling compensation in general over the next few weeks in light of this new judgement. As such, it might make more sense to wait and see whether a redress scheme is announced first, and then decide whether you need help with your complaint.
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