Car loan scandal payouts row – what’s it about?

The Financial Conduct Authority (FCA) may launch an official compensation scheme for people mis-sold car finance if it concludes there were widespread failings. A Court of Appeal ruling exposed hidden commissions, hinting at billions in payouts, but the Supreme Court will soon review it. Lawyers warn this could delay payments to buyers unaware of the commissions.

Who May Get Payouts?

The majority of new cars and many second-hand cars are bought with finance deals – around two million yearly, by a deposit and monthly payments with interest. After the FCA banned commission-based deals in 2021 (where dealers earned more for higher interest rates), it’s now reviewing pre-2021 agreements for compensation. With the prospect of banks and other lenders having to pay out millions of pounds, likely paid via a central scheme. However, a Court of Appeal ruling last month expanded eligibility, potentially costing lenders billions of pounds.

Why was the judges’ decision so important?

The Court of Appeal ruled that any car finance commission paid to dealers without buyers’ informed consent is illegal, beyond just the discretionary commissions banned in 2021. Buyers like Marcus Johnson from Cwmbran, Torfaen, (who unknowingly paid 25% commission on his 2017 Suzuki Swift), must be clearly told and agree to fees. After the ruling favoured Johnson and others, banks have set aside millions of pounds for potential compensation (Lloyds has put aside £1.2bn). The total cost of compensation could reach £25bn+.

How has the regulator responded?

The FCA has warned of an overwhelming number of complaints to dealers and motor finance providers after the Court of Appeal ruling and encourages claims for mis-selling, even for non-discretionary commissions. It extended firms’ complaint response deadline to December 2025, covering leasing and PCP deals. The FCA urges the Supreme Court to make a quick decision when considering the Court of Appeal’s ruling. The Finance and Leasing Association supports the extension, though some fear it delays compensation. In February, the Supreme Court dismissed a government plea to avoid market disruption from large payouts.