Background
If you have been watching television, listening to the radio, or scrolling on social media recently, you would have most certainly encountered an advertisement outlining that if you purchased a car between 2007 – 2021 via car finance, then you may be entitled to “thousands of pounds” in compensation.
The subject of mis-sold car finance loans has been a hot button issue since the Financial Conduct Authority (FCA) announced in 2024 that it would be launching an investigation into Discretionary Commission Arrangements (DCAs) and that it would be considering whether to initiate a potential redress scheme for consumers affected.
DCAs were common finance arrangements in which the amount of interest was inflated by brokers or dealers in order to increase the amount of commission they obtained. Such commissions were hidden from the consumer and resulted in consumers overpaying on their loans. DCAs were prohibited in January 2021 by the FCA, and so anyone who entered into a personal contract purchase or hire purchase agreement prior to 2021 most likely agreed to a DCA inadvertently.
Judgment of the Supreme Court
The Supreme Court issued an eagerly awaited judgment on Friday 1 August 2025 in Hopcraft v Close Brothers Limited; Johnson v FirstRand Bank Limited; and Wrench v FirstRand Bank Limited [2025] UKSC 33. The judgment addressed three claims regarding finance agreements arranged by dealers who then subsequently received commission from lenders. It is important to note that none of these claims concerned DCAs. The Court of Appeal in 2024 previously ruled that in such cases, dealers owed a fiduciary duty to their customers, and where the lender paid commission secretly to the dealer, this constituted a bribe in civil law. However, in its landmark judgment the Supreme Court overruled the reasoning provided by the Court of Appeal and held that dealers did not owe a fiduciary duty to their customers as the dealers were merely pursuing their own commercial interests. As dealers did not owe a fiduciary duty to their customers, the Supreme Court held that car finance lenders could not be held liable for bribery as a fiduciary duty is a precondition for such a tort.
However, one of the Claimants, Mr Johnson, was awarded compensation by the Supreme Court as the arrangement between the Mr Johnson and the finance company was deemed to be “unfair” under section 140A of the Consumer Credit Act 1974 (CCA 1974). This was due to the sheer value of the commission obtained, whereby the commission amounted to 55% of the total charge. Moreover, the lender had an agreed right of first refusal with the dealer, which had been concealed from the Claimant. It is important to note that the Supreme Court made it very clear that any decision surrounding unfairness under the CCA 1974 is highly circumstantial and would need to be assessed on the facts of each case.
The Response of the Financial Conduct Authority
The judgment of the Supreme Court has narrowed the scope for potential payouts by lenders regarding mis-sold finance loans. The FCA has since released a statement regarding a potential redress scheme following the Supreme Court’s ruling. Within their statement, the FCA has proposed that a redress scheme will likely cover consumers who entered DCAs prior to 2021. In light of the Supreme Court judgment, the FCA will also consult on whether the redress scheme should address matters under section 140A CCA in circumstances where motor finance consumers were treated unfairly. The FCA currently intends to launch a consultation regarding a potential redress scheme in Autumn 2025 and anticipates that such a scheme would launch in 2026. The FCA has estimated that most consumers will likely receive less than £950 in compensation per finance agreement and estimates that the redress scheme will cost lenders between £9bn and £18bn.
What Should Consumers Potentially Affected Do Now?
We endorse the advice provided by the FCA, who has warned against those consumers potentially affected using claims management companies or law firms attempting to entice individuals to sign up with them on a no-win, no-fee basis, as doing so may cost you up to 30% of any compensation paid. The FCA is hoping that the redress scheme will enable individuals to claim automatic compensation without the need to even attend court or even involve claim management companies. If this happens, you will have signed up to give up part of your payment with the claims management company or law firm doing no work.
Consumers who are concerned that they have paid too much for their finance or believe that they entered a finance agreement between 2007 and 2021 that featured a DCA, should issue a complaint now with their lender according to the FCA. Furthermore, the FCA has affirmed that consumers who have already issued such complaints do not need to do anything further.
Harding Evans are an award-winning full-service law firm with offices in Cardiff and Newport, who can advise on both personal and commercial matters. For further details on their services, please visit hardingevans.com
