04 Aug 2025
UK Supreme Court rules 2:1 on car loan commissions but FCA yet to have final say
Stuart Masson, Editorial Director of The Car Expert, examined last Friday’s (August 1st.) landmark UK Supreme Court decision and the UK’s Financial Conduct Authority (FCA’s) consultation announcement. Here is what he found:
“The UK Supreme Court’s ruling [on 1 August relating to motor finance] is a balanced and thoughtful judgment. By overturning two lower court decisions but upholding one, it effectively says that the widespread practices used by lenders were not inherently unlawful – but that doesn’t mean all customers were treated fairly.“While the lenders will feel vindicated by these two rulings, it wasn’t a complete win for them. The upheld third claim – where the financial commission was deemed so high that it created an ‘unfair’ relationship between the finance company and the customer – resulted in the lender being ordered to repay the full commission amount plus interest. This leaves scope for similar claims to follow from other customers and legal firms- with some reports saying there’s a £9bn to £19bn allowance for the compensation, down from the original £44bn if consumers won outright.
“For motorists, this means there won’t be automatic or widespread compensation simply because commission wasn’t adequately disclosed. Tens of millions of drivers who took out car finance under standard arrangements are unlikely to receive any money back, despite the growing media narrative suggesting otherwise.
“However, the picture is different for customers with discretionary commission arrangements (DCAs) – where the broker or dealer had the power to adjust interest rates to boost their own earnings. These agreements have been under investigation by the Financial Conduct Authority (FCA) for the last 18 months, and the regulator has now launched a formal consultation process with the lenders on how to move this forward.
“Also in consideration for a formal redress scheme will be cases where finance agreements were arranged in a way that was unfair to customers. This is a complex matter, as the regulator will need to establish all the necessary considerations to decide the threshold between ‘fair’ and ‘unfair’ agreements.
“The detail of how this is all worked out will be crucial, in order to provide an outcome that is fair and reasonable for any unfair practices that have been committed.
“The bottom line? Although lenders have avoided their worst-case scenario, there are still likely to be compensation payments for millions of customers who meet the necessary criteria.
“For drivers, the prospects are mixed. It’s not the compensation bonanza some headlines have hinted at – but it’s not the end of the road either. Those who had an agreement that included a DCA, and feel they were misled or overcharged, likely still have a strong possibility of compensation.
“From a wider perspective, this case has shone a spotlight on how poorly understood car finance agreements can be and have been. The industry now has a real opportunity to clean up its act and improve transparency for buyers. This isn’t just about legal risk: it’s about rebuilding trust with the millions of motorists who rely on finance to get behind the wheel.
“It is necessary for all lenders and car dealers to ensure that they are aiming for best practices, rather than minimum levels of compliance. The car industry is utterly reliant on a properly functioning car finance sector, so it’s in everyone’s interests to make sure that every customer gets the highest level of service.”
Bank of Ireland relieved
Bank of Ireland will be relieved with this judgement on historic loan commissions paid to car dealers. It has 2 per cent market share of the UK’s motor finance market.
It had set aside a provision of £143 million (€172 million) last year for a potential compensation scheme, but while they may still face compensation payment programmes, the likely extent of the compensation level facing lenders will now to be significantly lower than had been forecast.
In a nutshell
The UK’s Supreme Court has ruled that car dealers are not being bribed by their finance company partners and are not expected to show loyalty to their car buying customers, at the expense of their own commercial interests. However, the importance of commission being at fair levels, and being made clearly apparent to buyers, has been upheld.
What about Ireland and any possible knock-on?
An interesting article published in the Law Society of Ireland Gazette some weeks ago (mid-June) stated that lawyers at Mason Hayes & Curran (MHC) say that an upcoming ruling by Britain’s Supreme Court could have an impact on the commission structures in the motor-finance industry in Ireland.
Britain’s highest court recently concluded its hearing of an appeal concerning the use of discretionary commission arrangements (DCAs) in motor financing. A ruling is expected in July.
The case follows three linked English Court of Appeal judgments last October, which found that certain commissions paid to car dealerships for arranging loans were unlawful.
Commission structures
In a note on the firm’s website, the MHC lawyers say that the regulatory framework in Ireland differs in key respects from that in Britain.
Nevertheless, they add, the outcome of the British Supreme Court’s decision could have “a seismic effect” on commission structures across the industry.
“If the English Court of Appeal’s ruling is upheld, the judgment may extend beyond motor finance and potentially affect commission structures in other areas of consumer finance as well,” the lawyers state.
DCAs are financing arrangements where a lender pays a credit intermediary a commission that can change, depending on the interest rate the consumer is charged.
In addition, the intermediary is given latitude to set the interest rate paid by the consumer.
“In short, therefore, the higher the interest rate agreed with the consumer, the higher the commission paid to the intermediary by the lender,” the MHC lawyers explain.
Central Bank ban
In Ireland, the Central Bank has banned DCAs, due to concerns about potential conflicts of interest.
In Britain, a 2021 ban on the practice has led to a flurry of proceedings by customers seeking recovery of commissions paid to intermediaries in connection with their lending arrangements.
The MHC lawyers note that the English Court of Appeal found in favour of three consumers in test cases where they bought a vehicle through a motor dealership, which acted as an intermediary.
“Clearly being aware of the potential for its ruling to lead to significant consequences for lenders, it asked the UK Supreme Court to give guidance on when a lender can be held liable for the payment of a commission,” they state.
Little case law in Ireland
The MHC lawyers believe that, should the British Supreme Court uphold, even in part, the judgment of the Court of Appeal, it could have “a significant impact on commission arrangements, extending beyond motor finance”.
Noting that Ireland has little case law relating to key aspects of the Supreme Court’s judgement, MHC says that there will be significant scope for argument in Ireland as to the relevance and applicability of the ruling as a matter of Irish law.
“That said, English precedents generally have some level of persuasive effect before Irish courts, so the judgment is likely to have some impact here,” the firm’s lawyers add.
Britain’s highest court recently concluded its hearing of an appeal concerning the use of discretionary commission arrangements (DCAs) in motor financing. A ruling is expected in July.
The case follows three linked English Court of Appeal judgments last October, which found that certain commissions paid to car dealerships for arranging loans were unlawful.
Commission structures
In a note on the firm’s website, the MHC lawyers say that the regulatory framework in Ireland differs in key respects from that in Britain.
Nevertheless, they add, the outcome of the British Supreme Court’s decision could have “a seismic effect” on commission structures across the industry.
“If the English Court of Appeal’s ruling is upheld, the judgment may extend beyond motor finance and potentially affect commission structures in other areas of consumer finance as well,” the lawyers state.
DCAs are financing arrangements where a lender pays a credit intermediary a commission that can change, depending on the interest rate the consumer is charged.
In addition, the intermediary is given latitude to set the interest rate paid by the consumer.
“In short, therefore, the higher the interest rate agreed with the consumer, the higher the commission paid to the intermediary by the lender,” the MHC lawyers explain.
Central Bank ban
In Ireland, the Central Bank has banned DCAs, due to concerns about potential conflicts of interest.
In Britain, a 2021 ban on the practice has led to a flurry of proceedings by customers seeking recovery of commissions paid to intermediaries in connection with their lending arrangements.
The MHC lawyers note that the English Court of Appeal found in favour of three consumers in test cases where they bought a vehicle through a motor dealership, which acted as an intermediary.
“Clearly being aware of the potential for its ruling to lead to significant consequences for lenders, it asked the UK Supreme Court to give guidance on when a lender can be held liable for the payment of a commission,” they state.
Little case law in Ireland
The MHC lawyers believe that, should the British Supreme Court uphold, even in part, the judgment of the Court of Appeal, it could have “a significant impact on commission arrangements, extending beyond motor finance”.
Noting that Ireland has little case law relating to key aspects of the Supreme Court’s judgement, MHC says that there will be significant scope for argument in Ireland as to the relevance and applicability of the ruling as a matter of Irish law.
“That said, English precedents generally have some level of persuasive effect before Irish courts, so the judgment is likely to have some impact here,” the firm’s lawyers add.