Last week, the UK Supreme Court ruled that in certain circumstances the failure to properly disclose commission arrangements between lenders and car dealers could be unfair and therefore unlawful.

The FCA has responded by committing to launch a consultation to identify where motor finance firms were not complying with rules or the law by failing to provide customers with relevant information about commission paid by lenders to the car dealers who sold the loans.

The regulator has also said it will monitor if firms are following the rules and take action if they are not.

While not all motor finance customers will get compensation because in many cases commission payments were legal, the consultation is expected to commence in early October with those owed compensation likely to start receiving money in 2026.

Many in the motor trade have suggested that clients don’t have any concerns about how much compensation dealers receive from lenders in return for arranging the finance and note that the financing documentation discloses whether a commission is being paid and the amount involved.

The comments of Kenneth Purdon, CEO and Founder of a number of specialist car businesses, are typical of many of his peers.

He suggests there is an urgent need for reform within the industry and that too many variables and contributing factors have created a situation that is increasingly chaotic.

“At the heart of the issue lies a lack of transparency – and it’s not the fault of brokers or dealers. The root cause stems from lenders, who have structured products in ways that prioritise sales over clarity. It is time for both individuals and companies to reflect and ask: how did we get to this point? Notably, two recently dismissed cases involved commissions totalling less than £700, highlighting just how disproportionate some of the claims have become.”

Purdon believes the rise of ‘claim farmers’ also needs to be addressed and that many have made exaggerated or unfounded claims involving thousands of pounds, often with little basis. He also feels the legal profession must reflect on its role in the car finance crisis, either through misguided action or a fundamental misunderstanding of the issue.

He accepts that brokers and dealers should disclose commissions. “But it must be acknowledged that these often fall short of covering the costs involved in securing finance approvals. Ultimately, it is the lenders who must take responsibility for untangling the complexity of their own product offerings.”

With the Finance & Leasing Association (FLA) forecasting a 7% increase in in the value of consumer car finance new business in 2025, it is clearly important for customers to have clarity over what they are paying.

The director general of the FLA said the judgment would enable thousands of unfounded complaints submitted to lenders by claimant law firms and claims management companies to be removed from the system.

Although the estimated cost of the customer compensation scheme is less than feared by the larger motor finance lenders, who have set aside material provisions, the FCA’s decision could still have significant ramifications for the UK motor finance industry more generally observes Hyder Jumabhoy, Global Co-Head of White & Case’s financial institutions industry group.

“We expect this move to accelerate M&A activity due to some lenders having decreased risk appetite and also because of unused provision amounts becoming available for acquisitions,” he says. “It could also prompt some car manufacturers to enter the UK motor finance market to steady the supply of finance to buyers of new vehicles.”