Market reacts to motor finance commission ruling as FCA confirms redress scheme consultation

The Supreme Court reversed an earlier Court of Appeal ruling after markets closed late last week (1 August 2025) as it ruled in favour of lenders on the issue of secret commission payments made to motor dealers. 

The FCA had previously indicated that it would potentially consult on an “industry-wide redress scheme” for motor finance customers that lost out financially from “widespread failings by firms” on the issue of secret commissions in this area. 

Before markets opened today, the regulator confirmed that it would go ahead with its consultation.

It added: ”On Friday, the Supreme Court ruled that, in many cases, commission payments could be legal, but a lender did act unfairly, and therefore unlawfully, due in part to the size of the commission it paid to the motor dealer and how it was disclosed.”

This redress scheme, which was previously estimated to potentially cost lenders up to £44bn, will now impact fewer cases based on the Supreme Court’s decision.

Cases heard by the Supreme Court focused on whether car dealers had a duty to act in the interest of car buyers when selling a car on finance. It upheld a car buyer’s claim in one instance, where commission rates were too high, but sided with lenders in the other two test cases. 

This decision will reduce the scope for large scale claims for compensation from millions of motorists in the UK. With such high potential costs for motor finance lenders, UK chancellor Rachel Reeves attempted to step into the case in January to curb what she called a “windfall” compensation for borrowers. While the government’s intervention was knocked back by Supreme Court judges in February, it has now mostly ruled in the Treasury’s favour. 

Broad and complex

This potential redress scheme will not have a direct impact on the insurance sector, but the FCA’s position on the necessity for a redress scheme where failings to disclose commissions are found is significant. 

Commenting on the FCA’s statement, former FCA director of retail lending and senior advisor at Sicsic Advisory Philip Salter, said: “The FCA’s statement confirms the industry’s expectations of a market-wide redress scheme, but its proposed scope is broad and complex. 

”While the Supreme Court provided legal clarity, the FCA has now laid out the regulatory consequences. The challenge for firms has shifted from navigating legal uncertainty to preparing for an immense operational and financial task. The FCA’s approach requires firms to look beyond their DCA exposure and analyse their entire historical loan book against a complex matrix of ‘unfairness’.

“The FCA has provided a clear direction of travel. The focus for the industry must now be on preparing for the upcoming consultation and the implementation of what is set to be one of the most significant redress programmes the UK has seen.”

Jeremy Irving, financial services partner at Browne Jacobson, added: ”The Supreme Court’s decision was centred on what it called a “three-cornered” transaction, where an asset is sold through a financial arrangement involving an intermediary. In such transactions, each party – the asset seller, the buyer, and the finance provider – has its own independent interest in the deal and cannot be expected to act in another party’s best interests.

”The Court also confirmed that the intermediary’s financial interest, typically a commission, comes from the finance provider, not the buyer. This ruling could have implications for the insurance industry. It raises questions about whether insurance placements are comparable to these “three-cornered” structures, and whether there’s a shared understanding among insurers, policyholders, and the courts about who ultimately bears the cost of intermediary remuneration.

Brian Nimmo, head of redress at financial services consultancy Broadstone, commented: ”This ruling is a partial win for a motor finance industry, which will be breathing a huge sigh of relief.

 “However, providers are not out of the woods yet as discretionary commission arrangement cases will now need to be looked at on a case-by-case basis. The FCA will develop its redress scheme to deal with this development but how it will help them decide if a case is ‘unfair’ is the great unknown.”