Eligibility for Car Finance Compensation: Understanding the Supreme Court Ruling and Compensation Scheme

If you used car finance to buy a vehicle within the last 18 years, you may be eligible for compensation due to a recent court ruling on hidden commissions made by lenders to dealers. The key to determining eligibility is whether customers were treated fairly, although the regulator is still working on defining this. Compensation is expected to start being paid out in 2026 after a six-week consultation.

Millions of UK motorists who used car finance to purchase a vehicle within the last 18 years may be eligible for compensation due to a recent Supreme Court ruling on hidden commissions paid by lenders to dealers. The ruling, handed down on August 1, 2025, largely favored lenders, potentially saving them billions in compensation costs [2].

The Supreme Court ruled that hidden commissions from lenders to dealers on car loans were not unlawful, a decision that means millions of motorists will not be able to claim compensation. The ruling upheld only one consumer's case, filed by Marcus Johnson, while rejecting claims from two other consumers [2].

The Financial Conduct Authority (FCA) has indicated that it will consult on running a compensation scheme. The FCA estimates that the cost of the scheme could range from £9bn to £18bn, with most individuals receiving less than £950 in compensation [1]. The consultation is expected to conclude in six weeks, with compensation payouts starting in 2026.

Following the ruling, Lloyds Banking Group, which had set aside a £1.2bn provision for potential compensation, stated that it will keep the provision under review but that it is unlikely there will be any material changes [1]. Lloyds shares surged by 7.5% on Monday morning, reflecting investor confidence in the outcome of the Supreme Court ruling [3].

The ruling has significant implications for both borrowers and lenders. While millions of motorists will miss out on potential compensation, the ruling helps to restore confidence in the motor finance market. Analysts estimate that the total cost of the compensation scheme could range from £5bn to £15bn, with most payouts likely to be in the high hundreds of pounds [2].

The FCA has emphasized that its primary goal is to ensure that consumers are fairly compensated and that the motor finance market operates effectively. The regulator will work with lenders and industry stakeholders to determine the scope of the compensation scheme and the potential impact on the market [2].

In conclusion, the Supreme Court ruling on car finance commissions has significant implications for both borrowers and lenders. While millions of motorists will not be able to claim compensation, the ruling helps to restore confidence in the motor finance market. The FCA will work to ensure that consumers are fairly compensated, with compensation payouts expected to start in 2026.

References:
[1] https://www.sharecast.com/news/news-and-announcements/lloyds-keeps-pound12bn-motor-finance-provision-under-review-after-supreme-court-ruling--20520564.html
[2] https://www.theguardian.com/law/2025/aug/01/supreme-court-hands-partial-win-to-car-finance-companies-over-compensation-claims
[3] https://www.proactiveinvestors.co.uk/companies/news/1075986/ftse-100-live-shares-bounce-back-lloyds-and-close-bros-surge-after-motor-finance-ruling-1075986.html