The Supreme Court has ruled that car dealers do not owe a duty of loyalty to customers when arranging car finance, partially overturning a landmark Court of Appeal decision. It’s a significant moment in the ongoing mis-selling scandal, but it doesn’t mean compensation is off the table, especially for customers affected by Discretionary Commission Arrangements (DCAs), which remain under scrutiny by the Financial Conduct Authority (FCA).
The judgment centred on whether car buyers were misled by finance agreements that didn’t properly disclose dealer commissions. It effectively rules out compensation for millions of motorists on the grounds of unfair disclosure, but confirms that redress may still be due where interest rates were inflated due to DCAs, a practice banned by the FCA in 2021.
The FCA says it will announce by Monday 4 August whether it plans to consult on a redress scheme. Until then, the key message from Martin Lewis of MoneySavingExpert.com (below) is simple: sit tight and don’t sign up to a claims firm as many are charging fees for a process that might end up being free.
What the court actually ruled
The case involved three claimants who bought used cars on finance and weren’t told the dealers would receive commission. The court ruled that while this wasn’t ideal, it wasn’t illegal, and that car dealers do not have a fiduciary duty (or undivided loyalty) to their customers. The court also rejected suggestions that lenders had ‘bribed’ dealers, stating that commercial interest was a normal part of the transaction.
However, in one of the three cases (Johnson v Motonovo), the court did find in the consumer’s favour. The finance deal in question involved a 55% commission on the cost of credit, which was not disclosed, and the relationship between dealer and lender was ruled ‘unfair’ under the Consumer Credit Act. That crack in the judgement leaves open the door for similar claims.
Crucially, this ruling doesn’t apply to complaints about Discretionary Commission Arrangements (DCAs), where dealers were incentivised to hike up interest rates to boost their commission. These are being dealt with by the FCA, not the courts, and apply to roughly 40% of car finance deals up to 2021.
FCA response and what happens next
The FCA has promised clarity by Monday 4 August and reiterated its aim to ensure any future redress scheme is simple, accessible, and free for consumers. Any consultation would involve the car finance industry, dealerships, and the public.
An FCA spokesperson said: ‘We want to provide clarity as quickly as possible. Our aims remain to ensure that consumers are fairly compensated and that the motor finance market works well, given around two million people rely on it every year to buy a car.’
The government has also commented, saying it will work with regulators and industry ‘to understand the impact for both firms and consumers’. Meanwhile, campaigners and legal experts believe there is still scope for multi-billion-pound compensation in the months ahead.
What this means for you
If you’ve already submitted a complaint about mis-sold car finance – particularly via a free tool like MoneySavingExpert’s – don’t panic. The FCA is still reviewing DCA complaints and could soon announce how compensation will work. You don’t need to do anything just yet.
If you’ve already signed up with a claims firm, be aware that fees may apply even if you could have made a claim for free. Martin Lewis and the FCA are warning consumers not to sign up to claims handlers for now, until the full process becomes clear.
If you’re considering finance on a used or new car today, always ask if the dealership is receiving a commission — and how that affects the deal. Transparency has improved since 2021, but the legacy of this ruling is a reminder to read the small print and shop around.
Editor’s view: don’t sign up with a claims handler for now
This Supreme Court decision is a mixed bag. While it lets lenders and dealers off the hook in many cases, it doesn’t shut the door on all redress. In fact, it sharpens the focus on DCAs – a murkier area that may still result in meaningful compensation for drivers.
It’s frustrating, though, that so many consumers are still in limbo. Millions were encouraged to lodge complaints, and while many did so in good faith, they’re now being asked to wait even longer. It’s vital that the FCA provides clarity, and soon.
For now, Martin Lewis’s advice is the only advice you need – DO NOT sign up to claims handlers for now, until the full process becomes clear, and that’s going to take some time.
The bigger lesson here is one we already knew: car finance is complicated, often opaque, and not always in the buyer’s best interest. That’s why we’ll continue helping car buyers ask the right questions, and avoid the wrong deals.
Keith Adams – Editor, Parkers
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