A picture shows the British coat of arms on the outside the Supreme Court in central London on August 1, 2025.
Niklas Halle’n | Afp | Getty Images
Britain’s highest court Friday largely overturned a lower court’s ruling that certain car finance agreements were unlawful, a decision likely to bring a sigh of relief among lenders and limit the scale of compensation payments.
A Supreme Court panel of five judges sided with lenders on two of the three issues at hand, finding that they are effectively not liable for hidden commission payments to dealers. It said there was no bribery involved in the purchase arrangements and that dealers did not have a legal obligation that required them to act only in the customers’ interest.
“No reasonable onlooker would think that, by offering to find a suitable finance package to enable the customer to obtain the car, the dealer was thereby giving up, rather than continuing to pursue, its own commercial objective of securing a profitable sale of the car,” the judges said.
As a result, lenders are expected to be spared making compensation payments to millions of people who had taken out car finance plans that industry experts said could have cost them tens of billions of pounds. Banks have been preparing to pay out compensation with Lloyds, the U.K.’s biggest car finance provider through its Black Horse arm, having set aside over 1 billion pounds ($1.3 billion).
The decision was made after the stock markets had closed to prevent disorderly trading of firms linked to the car finance market.
The decision will likely be welcomed by the financial services sector, which has been rocked over the past decade by a series of scandals, notably in relation to the improper selling of payment protection insurance, or PPI, on loans.
The sector has also worried that it could face additional claims regarding the sale of other financial agreements, for example with regard to deals offered for the purchase of household appliances, such as kitchens.
The decision by the Supreme Court has diminished that fear, industry experts said.
“The risk of claims in other finance arrangements where commission payments are made will also have significantly reduced as a result,” said Andrew Barber, Financial Regulatory Partner at legal firm Dentons.
Last October, the Court of Appeal found that three motorists, who all bought their cars before 2021, had not been told either clearly enough or at all that the car dealers, acting as credit brokers, would receive a commission from the lenders for introducing business to them and should thereby receive compensation.
Two lenders, FirstRand Bank and Close Brothers, took the dispute to the Supreme Court, saying in a three-day hearing in April that the decision was an “egregious error.” Industry regulator, the Financial Conduct Authority, also told the U.K.’s highest court that the Court of Appeal ruling went “too far.”
Following the decision, the FCA said it welcomed the clarification and that it will be working through the weekend to analyze the judgment and “determine our next steps.”
It added that it will address with interested parties on a possible redress scheme to compensate customers before markets open on Monday.
“Our aims remain to ensure that consumers are fairly compensated and that the motor finance market works well, given around 2 million people rely on it every year to buy a car,” it said.
