Heavy advertising means that millions are now expecting to benefit from lenders like Lloyds, Barclays, Santander
A potentially seismic ruling from the UK’s highest court could open the floodgates for compensation claims tied to a widespread car finance mis-selling scandal, with more than 23 million people now believing they are owed redress.
Public anticipation has reached a fever pitch ahead of the Supreme Court’s verdict on whether lenders unlawfully paid secret commissions to car dealers for brokering finance arrangements. The ruling, expected this month, is widely seen as the catalyst for a possible redress scheme spearheaded by the Financial Conduct Authority (FCA)-a development that could mirror the scale and complexity of the infamous PPI payouts.
According to a recent survey commissioned by law firm Slater & Gordon, some 45 per cent of UK adults expect they may be eligible for compensation over finance deals dating as far back as 2007. The study, conducted by Find Out Now, reveals a growing perception that restitution is imminent, fuelled in no small part by a wave of advertising from claims management firms promising a windfall.
Read more: Barclays, Lloyds, NatWest multi-billion pound case to hit Supreme Court
The size of the potential liability is still a matter of debate. While leading lenders including Barclays, Lloyds, Close Brothers and Santander have so far set aside £1.7 billion in provisions, credit rating agency Moody’s has warned that the final bill could reach £30 billion—bringing it close to the PPI scandal, which ultimately cost the sector around £50 billion over a decade.
Whether the compensation burden becomes that large will depend heavily on the Supreme Court’s interpretation of disclosure requirements in motor finance agreements and the FCA’s subsequent course of action.
At the heart of the case are discretionary commission arrangements (DCAs), which enabled dealers to raise interest rates in exchange for higher commissions—without necessarily informing the consumer. The FCA banned the practice in 2021, but not before millions of deals were struck under these opaque terms.
The FCA has already indicated that it will publish its decision on whether to establish a formal redress mechanism within six weeks of the Supreme Court ruling. Should the judgment favour borrowers, the regulator is likely to launch a consultation proposing new rules and structures for compensating affected customers.
Under discussion are two possible models: an opt-in scheme requiring active participation from consumers, and an opt-out version that would automatically include eligible individuals unless they choose otherwise. The regulator has signalled a preference for simplicity and directness, aiming to make the process accessible without requiring consumers to engage legal firms or claims management companies.
Nonetheless, Slater & Gordon, which has managed to promote its way to some 200,000 prospective claimants would presumably rather go to court, and has warned that unless the redress scheme is designed with care, there is a real risk of public disillusionment. Chief Operating Officer Elizabeth Comley cautioned that poorly calibrated arrangements could result in a “backlash,” dragging the process through the courts and prolonging uncertainty.
“The public have very high expectations on the car finance scandal. They rightly expect to be compensated for their losses,” she said. “But if a redress scheme leaves many people disappointed and keen to challenge the process, that sort of backlash would be bad for everyone.”
Read more: FCA prepares for possible motor finance redress scheme
The implications of the ruling may not be confined to the automotive sector. Analysts have warned that if the court’s reasoning extends to other forms of consumer finance, the UK mortgage industry could find itself exposed to similar scrutiny. Commission payments to mortgage brokers—commonplace across the industry—could also fall under the spotlight if found to lack adequate transparency.
A decision against the lenders could mark a turning point in how intermediated financial products are regulated, with long-term consequences for both compliance standards and industry practices.
Industry insiders are also grappling with uncertainty over regulatory coordination. Sir Howard Davies, the former chair of the Financial Services Authority, last year criticised the FCA’s historical lack of clarity on disclosure rules—arguing that this vacuum has encouraged judicial intervention.
If the FCA moves forward with a redress scheme, firms will be required to undertake potentially complex reviews of historic finance arrangements, calculate compensation, and contact affected consumers. Costs could escalate quickly—especially if an opt-out structure is adopted.
In the meantime, the FCA continues to consult with lenders, consumer groups and trade bodies as it refines its post-judgment plans. While the full detail of any compensation programme remains unknown, the regulator has pledged to act with “clarity and speed” once the court’s opinion is handed down.
