Crisis looms for motor finance industry ahead of crucial 2025 court decision
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A crisis facing the UK’s car finance market is looming as a crucial court decision over the potential mis-selling of loans could see lenders foot a £30 billion compensation bill, and send shockwaves across the industry. Some experts have raised the possibility that potentially millions of motorists could be eligible for a payout.
This could happen if the UK’s highest court, the Supreme Court, upholds a landmark ruling on hidden motor finance commission arrangements next year. That judgment, made in the Court of Appeal in October, said it was unlawful for car dealers to gain commission from lenders without receiving the customer’s fully informed consent to the payment.
It means that customers should have been clearly told how much commission dealers would earn, and agree to it. The decision opened the floodgates to a potential fresh wave of complaints from motorists who think they may have been mis-sold car finance in previous years.
While the industry waits to see whether the Supreme Court upholds or overrules the judgment, the Financial Conduct Authority (FCA) is separately investigating whether there was widespread misconduct in the motor finance market and, if so, how affected consumers should be compensated.
Benjamin Toms, a banking analyst for RBC Capital Markets, said that if the court ruling is upheld, and depending on the specific judgment, there could be more complaints that are brought to court. The FCA, in a letter to the Supreme Court, estimated that almost 99% of the roughly 32 million car finance agreements between 2007 and 2021 involved a commission payment to a broker.
